History of Milken/Hurwitz relationship  Part 1

	

Hurwitz - The Early Years

		The Applied devices Scandal

		The SGI Scandal

		The SICONY Scandal

		The Early Ties with Milken

			REIT's

				The SMR-FDC Scandal

				PTA and URT

			Maxxus

			Drexel Utility Shares

			The McCulloch Oil Corporation Takeover

			Drexel As Hurwitz' Broker

			Drexel And MCOE

			Security Capital Corp

		Zero(2007)

		    CLARENDON, ATLANTIC CAPITAL, MCOH'S ZERO (2007),

              UFG & the SPC-ELIC STOCK REPURCHASE



		Drexel And The Simplicity Takeover

		

	     Drexel And The UFG-USAT Takeover

		Twin Fair

		Drexel, Hurwitz And AMSTAR

		Castle & Cook



The PL Takeover Era	

		Formation Of Maxxam As An Investment Company

			Triton Group Inc

			Republic Corporation

			Maxxus

			Maxxam

	    		MAXXAM'S SECURITIES HOLDINGS

		Drexel Ownership In UFG-USAT

		1985 Transactions

			Coastal Corporation-American Natural Resources

			Maxxam, ITC, Jefferies, Drexel, Boesky And AMF				Phillips

			UNC

			Amsted

			American Can-Jefferies

			HNG - Internorth

		Informatics General 

Transcontinental Services Group

		Stanley Cohen

		Informatics General

		Pacific Lumber and Andriba

		

		

History Of The Hurwitz-Drexel Relationship Part 1.



HURWITZ - THE EARLY YEARS



Charles Edwin Hurwitz was born March, 1940 in Kilgore, Texas, to Hyman and Eva Hurwitz.  His father was in the mercantile business, owned two men's wear stores, and started the first shopping center in Kilgore.  Charles seems to have been relatively prosperous as a child, and owned his own new car in high school.



Charles Hurwitz graduated in 1962, in marketing, from Oklahoma University.  He met his wife Barbara, from Tulsa, while attending there.

After a two-year stint in the U.S. Army, from 1962 to 1964, Hurwitz went to work for Bache as a stockbroker in San Antonio.



During 1965, he started his own investment firm called Investamerica, in partnership with his sister's husband Morris Penner. This  was well capitalized both families were affluent.   They sold mutual funds in Texas and Oklahoma. In July Hurwitz became Chairman of the Board. (Who's Who list him as COB, President, Investment Group, Inc. 1965-1967) 



Between 1965 and 1967, Hurwitz made his first million in the bull market of this era.  He is mentioned in a mid-1960's popular book about "Whiz-kid" stock traders. Frank Duperier, who was Hurwitz' personal broker in the mid-1960's, claims, "Hurwitz was the best salesman I've met in 40 years."  He also noted that Hurwitz was "unbelievable at anticipating movements of institutional investors", during these years, especially Fidelity."   



It is worth noting that fellow Whiz-kid, Gerald Tsai was with Fidelity until december 1965 when he started his own fund:	 Manhattan Fund. The stock offering was made through Bache. In 1967 Tsai's Manhattan Fund began to fail and in late 1968 Manhattan Fund was sold to CNA for $30 million.



The New York Times reported on 12/5/69 about an appeals court decision

regarding Fidelity Fund, Inc. for placing brokerage business with stockbrokers selling funds from 1966-1968. Tsai later became the CEO of Associated Madison Companies and American Can which purchased PennCorp Financial simultaneously as Hurwitz merged two S&L holding companies, one a subsidiary of PennCorp. Renamed American Can, Tsai's cpmpany had a controlling interest in Jefferies & Co in 1985.



It was probably Hurwitz' success in mutual funds that attracted the attention of George Kozmetsky and others.  Kozmetsky, born in 1918, was a graduate of University of Washington and Harvard University. He was the co-founder of Teledyne, Inc. (a major arms producer). In September 1965, he arrived at UT as the business school dean; by 1966, was managing investments for the University of Texas Foundation (UT Foundation), a non-profit; was Executive Associate of Economic Affairs of the University of Texas System Board of Regents; and was Dean of the Graduate School of Business of the University of Texas. Buildings at UT are named for him.



In 1967, Hurwitz moved to Houston, and in 1967, Hurwitz, Kozmetsky, and others, started the Hedge Fund of America, with a public offering of 1,700,00  shares worth $54 million.  In October, Hurwitz left Investamerica to become COB of Summit Management & Research Corp. (SMR).

	

The Hedge Fund was controlled by the SMR Holding Company, which included Hurwitz, Kozmetsky, and David Learner on its Board of Directors.  Other Hedge Fund backers included owners of several brokerage firms; a former head of the Strategic Air Command, (Thomas Powers); a Nobel Laureate Physicist; Willard Libby; and Dr. Paul McCracken, who had been head of Pres. Eisenhower's Council on Economic Advisers.



The Hedge Fund was one of the largest funds in the U.S., for a short period of time, but the market collapse and the bear market killed it.  In 1969, both Hedge Fund and Investamerica were sold without profit.  They had lost money continuously, and were considered financially obscure.



Towards the end of this period, a scandal arose at the University of Texas around conflict of interest at the UT Foundation involving the Hedge Fund, Barnabus, Inc., Loeb Rohdes & Co., Applied Devices, and Walston & Co.  The scandal involved conflict of interest and false declarations.  In addition to George Kozmetsky, University figures named included Carl Loeb, David Learner, Eugene Konecci, and James Bayless.  It is unclear whether any legal action was taken during this scandal.



The Applied Devices Scandal



Soon after his arrival at UT Kozmetsky began managing the new UT Foundation, Inc's. investments.  The first gift to UT Foundation was 100,000 shs of Applied Devices stock & $150,000 of its convertible debentures.  The stock was donated by Applied Devices controlling stockholder Carl Loeb of Loeb Rhodes Co.



Applied Devices, a defense contractor had been accused of defrauding both its stockholders and the taxpayers. Loeb hoped Kozmetski, big in the defense industry at Teledyne, could smooth the rough water. In return UT Foundation opened an account with Loeb Rhodes & Co.  



Kozmetsky associates Eugene Konecci and David Lerner joined the Applied Devices BOD. In early 1968, Learner was Pres/CEO of Applied Devises.	



Barnabus, Inc. (an investment partnership, run by James Bayless, a UT Foundation director) and  Walston & Co., an investment firm underwrote	$60 million in stock for Hedge Fund.



In October, 1967, Kozmetsky & Walston & Co. wrote letters to UT Foundation approving a trade wherein Bayless would get an option from UTF for the purchase of the Applied Devises debentures and part of the stock in return for UTF receiving a 5% interest in Barnabus, Inc. No mention was made of the conflict of interest from Kozmetski or Walston & Company.   

***



The 20-year relationship between Hurwitz and Kozmetsky was just beginning.  After emerging from the University scandal and selling off Hedge and Investamerica in 1969, they together bought Summit Group, Inc., a New York insurance holding company in the business of high risk automobile insurance.  Around this time they also began to buy undervalued companies.  Summit Group became a subsidiary of the SMR Holding Company, left over from Hedge Fund days.



In 1967,Ron Huebsch had joined SMR.  Huebsch, as of 1987 was Executive Vice-President of Investments for USAT. He was mentioned by Hurwitz in 87 as the person running the joint arbitrage account of Hurwitz' many

entities including MCOH, MCOP, Maxxam, UFG & PLC. In 1972 Learner is a consultant to Loeb Rhodes for one year. Sheldon Oster joined SMR as Treasurer. 



The SGI Scandal



Trouble was not far behind.  In late 1970, Charles Hurwitz, as head of Summit Group, Inc., was charged in an action brought by the SEC for  stock  manipulation  and  securities  fraud,  a case called SEC v. Everest Management Corp., et al., involving 43 defendants.  One of them, John Peter Galanis, known for his "high flying issues", was called a "career white collar criminal" by U.S. Attorney Rudolph Giuliani. 



In 1971, in the midst of litigation in S.E.C. v. Everest,  Summit Group was taken public.  Hurwitz served as its Chairman.  By December of 1971, Hurwitz and Summit entered into a consent decree on the Everest case and permanent injunction barring them from violating securities laws. Hurwitz

told Dingell in 1987 that the consent decree was entered into to assist the public offerring.

***



The principal business of Summit Group until 1975 was the ownership of Summit Insurance Company of New York (SICONY), a property and casualty insurer.  Additional controlling interests in SICONY included Hurwitz and Kozmetsky, Sheldon Oster, and Federated Development Corp. (FDC). In early 1971 Hurwitz was COB of Summit Insurance Company of New York (SICONY)  and remained so until May 1975. In July 1971, Oster joined SICONY after leaving the SMR BOD. In 1972 Huebsch left SMR. In December, James H. Paulin, Jr. joined SICONY and remained until August 1975.  Paulin had graduated from UT School of Business in 1972 and joined SICONY immediately after. In 1974

Huebsch joined SICONY.



The SICONY Scandal



In May 1975, SICONY was adjudicated by the Supreme Court of New York, New York County, to be insolvent and the Acting Superintendent of Insurance of New York was appointed liquidator of SICONY.  SICONY was adjudicated insolvent due to high risk  taking and ordered liquidated.  By the end of 1975, its parent, Summit Group went bust and was closed down by the State of New York.



Seeing the handwriting on the wall, SMR Holdings began a takeover attempt of Federated Development Corporation (FDC). 



In May 1975 Hurwitz, Huebsch, Oster left SICONY while on May  28	Lennon v SGI, SMR, FDC, H, Oster alleging, (Superior Court, New York County, Index 42173/77) was brought by the Acting Superintendent of Insurance of New York, charging that:

   --Hurwitz defrauded Sicony of at least $834,000; fraudulent

	 use of corporate funds in causing SICONY to pay

	 $2 million to its parent SGI.

   --Hurwitz caused damage to SICONY of at least $1,859,000 by          	breaching fiduciary obligations;  and

   --Hurwitz and Federated wasted and mismanaged assets of SICONY.



This insurance fraud action was settled in 1979 by Hurwitz paying what the New York Insurance Department called "a considerable of money." (later learned to be $400,000.)  

***

 

The Early Ties with Milken: REIT's



In 1969, Michael Milken entered Wharton in Class of 1970. Milken held a summer job at Drexel, Harriman, Ripley which becomes Drexel-Firestone and in early 1970. Milken goes full time with Drexel-Firestone, He writes no

paper updating low-rate bond study (Forbes 8/25/86) and gets degree only in 1978.  MM working to move large blocks of low rate bonds. He dominated market in early 1970's. He specialized in failing corporations and by

mid-1970's in REITS and other "junk" bonds.



In the 1970's, according to In Re Boesky Hurwitz begins his relationship with Drexel Burnham Lambert (Drexel) and Michael Milken. A close study of Hurwitz entities finds Hurwitz, Drexel, and Milken involved in many ways with Hurwitz playing roles as arbitrager, as junk bond issuer and as junk bond buyer.    



With the REIT stock market collapse in 1973, more attention was focused  upon securities issued by these failing companies.  In 1970 Hurwitz and Kozmetsky began searching for undervalued companies.  It is probably here around 1972 that Hurwitz and Milken began to do business, since both were into junk companies and the junk securities they had issued. Within a few years Milken controlled these securities and the market in them.



REIT's become junk stock the equivalent of junk bonds (JB's). REIT's total assets in 1968 ($1B), 1969 ($2B), 1974 ($20.5B) Michael Milken dominated the REIT market. Anyone interested in taking over REIT properties or entire trusts had a deal with Milken because he and his clients controlled the paper.  Many of these real estate men are still working with with Michael Milken in 1986.           (Forbes 8/25/86)

	

In early 1973 Drexel-Firestone merges with Burnham and Company to form Drexel Burnham. In mid-1974 the Market crashes. In September Fred Joseph joined Drexel Burnham Lambert. He comes from E.F. Hutton (1968-1972) and Shearson (1972-1974)

	

In 1973, SMR has $184,000 invested in SGI and $37,000 in three other investments.  SMR owns 47% of SGI.  SGI's principal asset is SICONY which on December 31, 1972 had no networth.  SMR had a working capital deficit.



The SMR-FDC Scandal

	             

In 1973, the Hurwitz-controlled Summit Marketing and Research Inc. (SMR) bought 78% of Federated Development Company (FDC), which at that time was a Real Estate Investment Trust (REIT). 



SMR acquired control of FDC in September 1973, buying 800,000 shares representing 50.0089% of the outstanding shares issuing $12.5 million debt to finance, secured by banks. SMR borrowed $10 million from	Continental Illinois, Ltd. for this purpose. Federated Development Company (FDC) created from Kirkeby Realty, Kirkeby Natus, Federated Mortgage Investors & United Ventures, Inc. Paul Tichenor affiliated with Kirkeby since 1963, remained on when Hurwitz took over FDC to become manager of real estate and the insurance holding company.



In December 1973, Hurwitz left Pres. of SGI and in Jan 1974, Hurwitz was elected COB/CEO of FDC, replacing W.T. Golden. In April Huebsch joined FDC as a consultant. The SEC was conducting, at this date, a private investigation of the last SMR tender offer for FDC shares.



In June 1975, Oster joined FDC just in time for SMR to be in trouble again. In 1973, they had issued a $12.5 million bank debt to finance the FDC takeover.  SMR Holdings refinanced in May 1975, and Hurwitz became personally liable for $5 million.  By June, he had brought in World Service Life Insurance to help. (Continental Illinois, Corp. subsidiary)  Security for loan was the 800,000 FDC shares. FDC repurchased these shares in late 1976. In August 1975, Paulin left SICONY to join FDC.



Still in trouble by late 1975,with SMR owning 82% of FDC, Hurwitz engineered an innovative "parent flip", a restructuring in which the subsidiaries FDC and FRC took over the parent company SMR(Hurwitz and

Kozmetski on both boards) because of its financial troubles, and assumed its debt.  Interestingly, the $10.8 million in SMR liabilities assumed by FDC included the personal liability of Hurwitz for $5 million. Directly after the flip, SMR defaulted on its 1973 loans, paying 53 cents on the dollar to the lending banks.  The Texas State Securities Board concluded the deal "raises serious questions about the fairness to Federated (FDC) public shareholders...and fiduciary duty...but that FDC could not be prosecuted under existing Texas laws protecting targets, since FDC was acquiror and SMR shareholders were not injured. A subsidiary of Federated owned a majority of Summit's outstanding common stock until some time in 1976.

***



Hurwitz used or attempted to use corporations under his control for his personal advantage to the detriment of the minority public shareholders.  These corporations have issued convertible preferred stock and purchased their own shares with the effect of substantially diluting the holdings of minority shareholders.  For example, in 1979, Hurwitz succeeded in squeezing out over 200 shareholders of Federated (as well as avoiding S.E.C. reporting requirements) by engaging in a 1-for-40 reverse stock split that was followed the next day by a 39-for-1 stock split that re-    stored  the  number  of shares to their  prior level.   Finally, ---

left with less than 300 shareholders, FDC no longer had to file the public disclosures (10-K's, etc.) required by the Securities and Exchange Commission.



Shortly after the parent flip, the SMR/Summit/SICONY enterprises fell away and disappeared.  Hurwitz and Kozmetsky then turned the attention of the new parent, Federated Development Company (FDC) (a new name, a clean slate?) towards greenmail; takeover attempts; and real estate management (land taken by FDC foreclosures).

	

By December 1975 FDC bought 20% of Federated Reinsurance Corp (FRC). In 1976, Huebsch became a director of FRC.



In 1976 Drexel Burnham merges with William Witter, controlled by Belciar Compagnie Bruxelles Lambert came to become Drexel Burnham Lambert 



By 1977 the market crash of 74 created bargains, inflation raised the value of assets but not stock prices. It became cheaper to buy a company than to build one.



In April 1977, Drexel underwrote its first junk bond (JB) issuance: Texas International (oil & gas exploration and equipment manufacturing.)



Tom Spiegel had inherited Columbia S&L (COL S&L).	Fred Carr in '69 left as head of Enterprise Fund just months before its collapse; In 1974 he was hired to head First Executive. 



By the end of 1977, Drexel has 6 more JB deals than Lehman Bros. for the year for a total of $124.5 million. Lehman Bros. were the originators of junk bonds. 



PTA and URT



FDC, often using its insurance sub Federated Reinsurance Company (FRC), began to invest in other REIT's for the purpose of "greenmailing." 

Greenmail seems to have been one of Hurwitz' favorite techniques. 

Greenmail is threatening to take control unless the target corporation purchases back the stock at prices substantially above prevailing market. These investments included Property Trust of America (1977) and United Realty Trust (1977). FRC would later be used to acquire control of MCO Holdings, United Financial Group with its sub the United Savings Association of Texas (UFG-USAT) and Simplicity Pattern Co the predecessor of Maxxam.



In mid-1977 Hurwitz approached James Polk,III, pres. of Property Trust of America (PTA) an REIT. Hurwitz offerred to buy control of PTA & through PTA to buyout 2 or 3 other REITS to be combined under one management. Hurwitz proposed to infuse capital into PTA by Hurwitz buying PTA issued convertible subordinated debentures (junk bonds), the money to be used by PTA to purchase shares of United Realty Trust (URT) based in Beverly Hills, CA. In November, 1977 FRC held 113,697 shs of PTA valued at cost:

$667,371.90 or $5.87 per share.



In 1978, after the attack on Property Trust of America (PTA), PTA sued Hurwitz and others, PTA v FDC, FRC, H, Oster, Paulin, for filing a false 13D and falsely stating in it that he and his associates had acquired shares of PTA for "investment purposes," and a restraining order was granted.  The tender offer for PTA was thereafter dropped, and Hurwitz sold back to PTA FRC's PTA stock. On March 13, 1978, PTA paid FRC $6 p/sh for FRC's 167,666,404 shs of PTA. The total value of the PTA shares was now $1,005,998.



On March 31, 1978, FRC acquired 278,000 shs United Realty Trust (URT) at cost of $2,436,730.04. On July 3rd, URT v FDC, FRC, Hurwitz was filed.

On February 1, 1979, URT bought FDC's 285,700 shs at $12.55 p/sh for

$3,585,551 plus $320,000 for covenants keeping Hurwitz from purchasing URT stock or entering a proxy battle until 2/1/84.



Hurwitz' modus operandi has included the purchase of a stake in a "target" company in open market transactions without disclosing his and his associates' true intentions, including the intention to seek control or to extract "greenmail."  By withholding his true purpose, and typically concealing such purpose under the guise of false representations as to his alleged passive "investment" intent, Hurwitz has been able to induce public shareholders to sell their shares to him, or entities under his control, at prices far below the prices he would have had to pay if he had disclosed publicly his true intentions.  Hurwitz' attempts at greenmail have, in large part, been successful because the possibility of him becoming personally involved in a company's business and operations is a powerful inducement to pay a premium to ensure that such involvement never takes place.  

***

 Maxxus

				

In 1978, FDC-FRC began investing in the Maryland Realty Trust, a REIT, which, once it came into FDC-FRC's control, was renamed Maxxus and in 1984 merged into Maxxam Properties Inc, a sub of Maxxam Group Inc (Maxxam). 



In April, 1980	Maryland Realty Trust (MRT) sought recapitalization

following Ch. 11 reorganization. FRC, Kozmetsky, & "the group" already major shareholders committed to purchase a pro rata portion of new shares.

In February, 1981 with Oster & Kozmetsky Jr on MRT BOD, FRC owned 44%, Kozmetsky (13.4%), Kozmetsky, Jr (6.4%).



At the end of November 1983, Maryland Realty Trust changed its name to

Maxxus. 

***



 Drexel Utility Shares



Also by 1978, FDC-FRC held an investment in Drexel Utility Shares, which it maintained until at least 1982. Drexel Utility Shares was renamed Energy & Utility Shares Corp. Energy & Utility Shares is believed to be a Milken created and advised junk bond mutual fund. In 1977, Milken had begun a series of high-yield mutual funds so that small investors could invest in a diversified portfolio of junk bonds. 



In 1980, FRC held $1,711,200 in EUS shares. In November 1981, FRC sold 108,900 shares of Energy & Utility Shares, Inc. for $2,070,189.  Ezra Levin, an FDC director, was on the Board of Directors of Energy & Utility Shares Corp. during the pertinent period. Levin first appears in Hurwitz entities when he joined the FDC board in 1975. He was elected to the MCO Holdings board in 1978. 

***

		

The McCulloch Oil Corporation Takeover



In 1978 Hurwitz began his foray into the world of hostile takeovers, by attacking McCulloch Oil Corporation.  (We have not found any evidence that the takeover of FDC had been hostile, although certainly its fairness to FDC shareholders was questioned).



McCulloch Oil Corporation may have been ripe for takeover.  Incorporated in 1955 as the Cuban-American Oil Company, it changed its name in 1960, during a merger, to McCulloch Oil Corporation of California.  Further mergers in the 1960's led to further acquisition of oil and gas properties, and the name was simplified in 1969 to the McCulloch Oil Corporation.  The early 1970's led to the acquisition of at least ten new subsidiaries - mostly in gas, oil, airways, and coal, but with some resorts and land development properties as well.  Yet something was wrong, because by 1975 and 1976, some subsidiaries were sold off, and McCulloch posted a $60 million loss in 1976.  In 1977, Robert P. McCulloch MCO's founder died, due to a combination of drugs and alcohol.  Also in that year, an oil field subsidiary pled guilty to fraud.  The combined years of 1977 and 1978 showed a loss of $63 million.



In 1977, MCO bought 51% of Pratt Properties, Inc. from Loren Pratt and all of the land development assets of McCulloch were combined into a subsidiary called Pratt Properties.  The real estate developments of McCulloch acquired in the 1960's (Fountain Hills, Lake Havasu City, Holiday Island and Pueblo West) probably went into this subsidiary.



It is unclear why Hurwitz and Federated wanted to acquire McCulloch Oil Corporation.  More than likely they saw it as a cash-rich company that had been recently poorly managed and therefore undervalued.  This was the pattern of takeovers of the late 1970's merger wave.



In 1978, Hurwitz, as Chairman and CEO of Federated, and using FDC's subsidiary Federated Reinsurance Corporation (FRC), bought an option on 1 million shares of McCulloch stock at $3.50 per share, from Black & Decker.  and for $10 another option, `the second option,'for  1,216,931 shs of MCO.



In May 1978, FRC filed a Schedule 13D disclosing the purchase of over 5% of MCO's common stock.   McCulloch Oil sued Hurwitz "to tie him up."  And in June 1978, George Kozmetsky and Ezra Levin were elected to the Board of McCulloch Oil.  By August 1978, Charles Hurwitz had also been elected to the Board.  The 13D claimed "investment" was the sole purpose of purchases by FRC and, while it reserved the right to take alternative courses of action, it did not disclose any plan or intention by FRC to seek control of McCulloch, or representation on its Board. Nevertheless, within months of the filing of the 13D, Hurwitz and an associate became directors of McCulloch, and, by March 1980, Hurwitz was appointed Chairman and CEO of McCulloch Oil Corporation.



In 1979, C.V. Wood, the Chairman of McCulloch's Board of Directors, retired.  In February MCO BOD appointed a Special Committee - Land

to evaluate 51% sub PPI  and during 1979, McCulloch Oil acquired the remaining portion of Pratt Properties, by purchasing the 49% owned by 

Loren Pratt. Pratt remained as a consultant to MCO until July 1984 to make it a wholly-owned subsidiary, and then changed Pratt's name to MCO Properties.  



In late 1979 MCO offerred $60 million in 12-1/2% Subordinated debentures. Carr's FEC held $6.63 million. On Dec. 10, 1979 MCO self-tenders a redemption: stock for subordinated debentures.



On May 17, 1979 MCOH board member William Leone is listed as a director of Franklin Financial Corp. (May be a Kansas City based holding company, parent of Franklin SA, Ottawa, Kansas.) 



By 1980, the McCulloch takeover was completed.  It appears that a weak Board of Directors was unable to successfully defend itself against the machinations of a corporate raider.  Joseph Hegener, on the McCulloch board since 1960, remained.  Charles Hurwitz was elected Chairman of the Board in 1980, and the name of McCulloch Oil Corporation was changed to MCO Holdings (MCOH).  MCO Holdings then consolidated its oil and gas properties into a new subsidiary called MCO Resources, and made George Kozmetsky its head.  The formerly unwieldy company then had two major divisions, real estate (MCO Properties) and oil and gas (MCO Resources).



Subsequent to Hurwitz' obtaining control, MCOH offered an exchange of its common shares for unregistered convertible preferred stock with voting privileges far in excess of those of the common shares.  The effect of the exchange was to dilute substantially the holdings of MCOH's minority shareholders, because only Hurwitz and his associates (who already had control) were willing to trade their common shares for unregistered--and thus illiquid--securities, thereby dramatically increasing Hurwitz' actual voting control.



MCO Holdings was ready, under the helm of Hurwitz and Federated Development Company, for a new decade of takeovers.



***

 Drexel As Hurwitz' Broker



Types of connections between Milken/Hurwitz and Drexel/Maxxam list other types of connections.  Risk Arbitrage in  Takeover stocks - buy/sell; Drexel as Hurwitz adviser and investment banker;  Greenmail - example - AMSTAR; Mergers and acquisitions  Putting into play - the role of rumors in

money making and in takeovers.  Actual takeover offense and defense

Junk Bond Network includes institutional investors; savings & Loans; companies "in play"   Issuers (corporate raiders)   Buyers  (S&L's, institutional investors)



In mid-1978, Milken visited Houston where James Caywood of Caywood

Christian had a small fund. By '86 Caywood had  $l.5 Billion mostly from S&L's to invest. Caywood also ran American General Capital Corp. 



Milken raised $50 million in JB's for Sun Chemical. Norman Alexander of Sun Chemical (related to WRI family?) paid high fees for deals because of needing Milken to trade bonds for him.



In August	Drexel/High Yeild Department, Milken moved to L.A.	Milken formed Lorsand Partnership, GLJ, Otter Creek, L.P., Cambrent Financial Group.



Milken sets people into the management of sources of capital on an ongoing basis

     

At the end of 1978	Drexel has had 14 issues of junk bonds for $439.45 million

and First Executive bought 66.7% of the Drexel junk bond issues.

	

In the beginning of 1979, Milken had it all in place; `a springboard movement'. Stephen Wynn, who wanted to move up from Golden Nugget, had Stan Zax (Milken's cousin) of Zenith LIC introduce him to Milken. Drexel accepted Wynn where Harrads, Bally & Caesars have been denied Drexel's aid. Drexel raised $125 million for Wynn. At the end of 1981 Drexel raises $160 million for Wynn but it took 2 yrs; thru 1987 Drexel raised $1 billion for Wynn. John Kissick nominally Milken's boss, sat on Golden Nugget BOD.  





By the end of 1979 First Exec. brought 73.3% of Drexel junk bond issues.



In 1980 the Recession began. Milken gave a deposition to the SEC.



By the end of 1980 Drexel issues $415 million in junk bonds of $1.4 billion

issued industry wide. First Exec. bought 86.7% of Drexel junk bond issues.





In 1981, Milken formed Belvedere Securities. Managing partners are James Regan & Edward Thorp controllers of Princeton-Newport Partners & Oakley-Sutton managment. Belvedere General Partners included Milow Corp. (Milken

& Lowell Milken) and Richard Sandler.  Milken also formed Dorchester Government Securities.  Regan-Thorp had given Milken the treasury stripping idea.  Each Limited Partners (LP) had 4 individuals and one corporation as general partners. In each case the corporation was Milow which had 2 stockholders, Lowell Milken and Richard Sandler, per Milken in LB1514819.



When First Exec. needed $10 million to go into reinsurance, MM sold $5 million Pf to Posner, Lindner, Steinberg, then Milken/Drexel put in $5 million (50% interest; in 1986, diluted to 46%) in the reinsurer, subsequently renamed First Stratford. First Stratford formed a group of reinsurers including Clarendon Insurance Co, based in Bermuda and may explain the control Milken and Hurwitz later had over the course of events related to MCOH's Zero(2007).	 



In December 1981, Boesky filed form BD regarding Seemala wherein a Milken partnership Camro Associates owned 100% of Class B stock or 1% of Seemala's equity and had since 1/1/81. This showed Boesky-Milken relationship in its early stages.



The number of firms selling junk bonds (including Drexel) in '79(17), '80(13), '81(6); junk bonds issued to date $1.47 billion of which Drexel sold $1.08 billion in 20 deals. First Executive bought 100% of Drexel junk bond issues in 1981.



The earliest known Hurwitz-Milken "broker" relationship was in 1981, when Drexel brokered MCO Holdings' floating rate bonds.

***



The first two years of the new decade - 1980 and 1981 - were relatively quiet ones on the corporate transaction front for Hurwitz and MCO Holdings.  1980 marked the completion of the takeover of McCulloch Oil Corporation, the election of Hurwitz as Chairman of the Board, and the important name change from McCulloch Oil to MCO Holdings.  Even though Federated Development Company owned only 47% of the voting power of MCO Holdings, control and management were unquestioned under the new leadership.



In February 1981, MCOH began buying Integrated Energy, Inc. John P Holmes Jr was a director of IEI. Holmes is a longtime friend and business associate of John H Roberts Jr., mutual business associates of Connie "Chip" Armstrong and MCOH director Stanley Rosenberg. In March 1984, acquisition of Integrated Energy, Inc. was completed by MCOH. IEI merged with MCOR to become MCRIC. Since early 1980 MCO Resources (MCOR) was 50% owned, 75% controlled by MCO, with Kozmetsky as CEO.                   



In November 1981, MCOH or MCOR? sold its California oil fields for $155 million in notes to Manley-McGinn.



In December 1981, Hurwitz announced a 1-for-600 reverse split for Federated Development Company (FDC).  Hurwitz attempted unsuccessfully to squeeze out most of the remaining public share-shareholders of Federated by proposing a 1-for-600 reverse stock split which would have forced investors to sell their interests at 20% of book value. The FDC stock split caused suits to be filed in early 1982 by Howard Wolf, of Fulbright and Jaworski, in federal court; and by New York-based Galdi Securities in State court.  Hurwitz abandoned his effort after these lawsuits, backing down on the stock split, it is believed, because the suit sought removal of some FDC directors.

***

 Drexel And MCOE



In March 1980, FDC controlled MCOH with 47% voting control but only 20% of common stock: Hurwitz was elected chairman and CEO of MCO. In May FDC exercised the 2nd MCO option and MCO changed its name to MCOH.



Beginning in the Spring of 1982 Drexel  and Shearson served as a dealmakers for MCO Equities selling shares of MCOE for a fee. Hurwitz was bundling distressed properties from FDC and other REIT's and offering shares to the public. MCOE was reputed to be Hurwitz' "Billion Dollar Brainstorm" until its failure in October after less than a year. 

***



Security Capital Corp



The	Reagan '81 Economic Recovery Act changed the tax structure



FRC's 1979 investments included Chase Manhattan Corp, Citicorp, Manufacturers Hanover, Melon National, Tennaco Offshore, Barclay's, First City NB of Houston, Royal Bank of Canada all were sold before the end of 1980. Holdovers included Drexel Utility Shares (renamed Energy and Utility Shares), Texas International, Zapata Corp (Bush's corp), and MCOH. New issues included Coastal Corp, Ensearch, Maryland Realty Trust (Maxxus). This may demonstrate a change in strategy from connections to New York based corps to Texas based corps as the Texas financial community began to exert its independence.



May 15, 1981, FRC filed a 13D on Security Capital Corp. (SCC). SCC had a subsidiary Benjamin Franklin Savings Association in which J Livingston Kosberg was reportedly a principal. This was Hurwitz' second known attempt to acquire control of a savings and loan. On October 30	FRC owned 529,000 shares of SCC valued at $1,934,513.40. In April, 1982 FRC sold its SCC shares to a subsidiary of SCC for $2,380,000, or $4.50 per share for the 529,000 shares. Immediately afterward FDC and MCOH began to acquire United Financial Group shares.

***

			

 Drexel And The MCOH Zero(2007)



In 1982, Corporate profits plummetted. Corporate raiders began to emerge.	

 	

On May 31, 1982 Milken formed his inner circle of favored clients who bought hard to place issues and enjoyed a place in the partnerships Milken was forming. During the period (1/1/80-5/31/82) Milken's closest contacts are Richard DeBurke (CNA Financial Corp.), Fred Carr, Carl Lindner, Saul Steinberg, Stephen Wynn, Victor Posner, Mishlis Riklis. No one but Milken knew the partnerships trading activity according to Stewart.



Boesky doing business with Jefferies in this period.



During the Spring 1982 Shearson's Peer Wedvick joined Clarendon IC.



In May 1982, Guy Dove, soon to head Clarendon's Atlantic Capital was charged with trading Advent Corp. on inside information. 

	 

At this years Gobhai session the concept of airfund or blind pool was born leading to the `highly confident' letter, thus making credible takeover artists of Icahn, Pickens and others.



SEC investigated Milken's influence in trading in Riklis' Rapid American, Lindner's AFC & Steinbergs Reliance from Jan. '80 - May '82 (trading period). The investigation also included CNA and First Exec. Milken gave a deposition. This involved going public with LBO's after going private through a merger and the manipulation of stock in the process.





To save JB holders Drexel used Sec. 3(a)9 of Securities Act of 1933. New paper issued to replace earlier unregistered JB's. Over next 5 yrs. Drexel does 175

of these exchange offers for $7 billion in JB's



In 1982, There were 2,297 takeovers.  Junk bonds were 11% of the total corporate debt issued. Drexel offerred only 8 issues of JB's over $100 million. Drexel started raising `mezzanine' financing define with 2 deals in 1982 and 2 more in 1983. First Executive bought 92% of Drexel's junk bond issues.

***



Zero (2007)



In July 1982, Drexel underwrote MCO Holding's Zero(2007). It is now the subject of the litigation United Progressive v Hurwitz. Simultaneously, MCOH suspended its quarterly dividend.	



The Zero (2007) was a very strange instrument created for the purpose of increasing Hurwitz' control of MCO Holdings. Considering that it is possible that, at this early date, Hurwitz conceived of the 1984 creation of a takeover vehicle, a major takeover, and the eventual merger of MCOH and Maxxam; the Zero (2007) was an instrument to increase Hurwitz' control of the final survivor corporation: Maxxam Inc.



The history of the Zero(2007) involves Drexel (the underwriterand first purchaser), ELIC (the second purchaser), Drexel again (the third purchaser who appears to have owned the bond from March to August 1986), Clarendon Insurance Company of Bermuda (the fourth purchaser who owned the bond from the beginning of August 1986 until its sale to Maxxam sub Maxxam Properties Inc in November 1987. Clarendon did however, sell an option for the Zero to Hurwitz, personally, while it owned the bond), MPI(the fifth purchaser), which converted the bond into 990,000 shares of Maxxam Inc and then sold these to Hurwitz at a price that was about one-third market value for the shares.



Clarendon's sub Atlantic Capital was a purchaser of the PL takeover bonds. Atlantic Capital was run by Guy Dove III, an ex-Drexel employee. There were rumors that Milken had an equity stake, perhaps through First Executive affilliate First Stratford, in Clarendon, which became a subject for an SEC investigation relating to inside trading in Drexel's 1985 junk bond issuers.  Clarendon was used by Milken to take a 20% stake in Centrust in 1986. 



             CLARENDON, ATLANTIC CAPITAL, MCOH'S ZERO (2007),

              UFG & the SPC-ELIC STOCK REPURCHASE



In 1981,Rodrigo Rocha, `a Mexican' with his `cohort' Eerki Pesonen, Chairman of Kansa General Insurance Co. in Helsinki, Finland, took

over Clarendon Insurance Company, a Bermuda based reinsurance company.  Kansa owned 35% of Clarendon.



In 1982, First Stratford, a reinsurance company, was formed and owned, primarily, by Milken and First Executive.  Kansa was a member of First

Stratford's pool of reinsurers. Atlantic Capital was formed as a subsidiary of Clarendon. Kansa had a AA rating which passed through to Clarendon then to Atlantic; Atlantic began selling investment contractslosing money. Atlantic also lost money on computer-driven hedging attempts using Treasuries.



In April 1982, MCOH and FRC filed their first joint 13D with respect to UFG. On May 4, Drexel agreed to sell $260,000,000 face amount 12-1/2% 

ZCSSN's (2007)define, convertible debentures [Zero (2007)] for MCOH. The net proceeds were $3,497,000. By July 26, Drexel had sold the Zero (2007) to ELIC.  In August MCOH loaned funds to FDC to buy additional UFG stock.



On August 18,1982 Simplicity Pattern Co. (SPC) announced it was buying ELIC's SPC stock at 35% over the market price by issuing a note to ELIC with face value of $14.4 million at 8.__% due in 7 years. 



In May, 1983 ELIC owned 10% of AMSTAR. By June, Drexel was advising SPC in its attack on AMSTAR.



On Mar. 22, 1984 an MCOH interoffice memo discussed a put-call agreement regarding the Zero(2007). An MCOH "Schedule" was drawn up showing "MCOH, Zero Coupon Bonds, Executive Life", with the key figures 7/26/87, $8,277,771, 752,525 shares.



By mid-1984, Atlantic had moved to Milken's junk bonds and preferred stock.  Guy Dove, a former Milken employee, became its trader.  Rumors were circulating concerning Milken having an equity stake in Clarendon.



By the Fall, Atlantic Capital had changed strategies, because the AA rating important to its insurance business was lowered. Within the year Personen left Kansa to join Clarendon, in its London office. 



On December 31, Maxxam owned $.930 million or 20,000 shares of CenTrust preferred stock. Clarendon was used by Milken to take a 20% stake in Centrust in 1986 prior to the emrgence of BCCI's ownership position in Centrust. Drexel acquired 733,00 shares of CenTrust Common initial stock offering underwritten by Drexel in 1985. Steinberg's Reliance FSC held 7.7%.

 

Early in 1985, Guy Dove III, the former Drexel employee, was running	

Atlantic Capital's $3 - $4 billion portfolio from an office located across the street from Milken's Drexel headquarters in Beverly Hills.  Atlantic,

et al. are "heavy hitters" in takeovers in 1985, including National Can early in 1985 and Revlon and Pacific Lumber later in the fall.



By early 1985 ELIC had acquired 9.9% of Imperial Capital      

(ICA).  Columbia S&L held 8.08% of ICA.  Drexel held 7.2% of UFG.                                                 

Planning by Maxxam, Drexel and others for takeover of Pacific Lumber Company had begun by mid-year.



In September Atlantic Capital was a heavy hitter in the Revlon takeover using names Atlantic Capital Corp., Worldwide Trading, SSC II Corporation, Garrison Capital, First Oak Financial.



In November, Atlantic Capital bought $68.5 million in PL takeover bonds second only to First Executive. Note that on  Feb. 9, 1987, SEC launched an investigation of Clarendon Group, Ltd. regarding insider trades during 1985 related to Drexel junk bond sales. 



In 1986, Dove moved to Clarendon's London office.	



On March 31, MCOH and Drexel amend the Zero (2007) regarding the loss of MCOR to Maxxam. Thus Drexel was then the owner of the Zero.



On August 18,	Hurwitz entered into an agreement with Clarendon Insurance Company so Hurwitz would purchase the Zero on November 18, 1987 at a price of $8,144,721.



Question: Did Clarendon IC, London buy Maxxam's TSG stock and then sell it to USAT six months later?



On October 31,	MCOH and Clarendon amended the Zero (2007) to reflect the

merger of Maxxam and MCOH which was announced seven days earlier on September 24, 1986, but was not completed until November 24, 1987.



In December U.S. District Court Judge Owen Panner granted a preliminary injunction against Dove, Garrison Capital Corp., Charles Knapp and Traflagar Holdings to block a hostile takeover.



In December Clarendon America IC and Clarendon National IC both indirect US units of Clarendon Group, Ltd. took a 20% stake in CenTrust S.B.	



On April 7, 1987 Clarendon Group, Ltd. began a takeover of a former Teledyne unit, Argonaut. Kozmetsky was a co-founder and still a large shareholder of Teledyne.



On July 26, the Zero would have converted to $8,277,771.34 or 752,525 shares at $11 per share if one had converted it on that date.



On November 16, Hurwitz terminated his agreement with Clarendon.

MPI purchased the note from Clarendon for $8,139,712. Simultaneously, MPI entered into an agreement with Hurwitz, a put-call, regarding the Zero (2007). MPI could "put" to Hurwitz for $8,704,598 between 7/3/88 and 7/17/88 and Hurwitz could "call" from MPI for $8,996,297 in the same period.



On May  18, 1988 the Put-call was amended with the put exercisable	

between 5/20/89 and 6/3/89 at the price of $9,9000,000 and the call exercisable between 7/3/89 and 7/17/89 at the price of $10,300,000.



On Feb. 17, 1989, MPI, MCOH and Hurwitz agreed that Hurwitz would exercise his call and MPI would convert the note to shares prior to the

exercising of the put-call to Hurwitz. Hurwitz would pay $10,304,068 for

990,000 shares. The conversion probably brought tax advantages to MPI.



On April 9, 1989, Progressive v. Hurwitz was filed.



By July 6, Hurwitz acquired 990,000 shares for $10,304,068 of which $8,500,000 was obtained from the proceeds of a loan from FDC. The windfall to Hurwitz was $19,907,040.  He received stock at $11 per share when 

the market was at $30.50. Is it possible Hurwitz traded these shares for Drexel's Maxxam warrants?

describe in Quid pro quo terms the power Milken had over Hurwitz with control over the Zero (2007)

***



 Drexel And The Simplicity Takeover



In 1982, Drexel had been trying to find a suitor for Simplicity Pattern Corp (SPC). ELIC owned stock in SPC. FDC-FRC and MCO Holdings (FDC-FRC-MCOH) took over SPC. SPC purchased ELIC's SPC stock for 35% over its market value.



The same months in 1982 that the Zero (2007) was issued and the smooth acquisition of UFG was going forward, Hurwitz and MCO Holdings began and completed the takeover of Simplicity Pattern Company, Inc.  After two years of defending themselves against takeover attempts, Simplicity fell rather quickly (although probably not willingly) into Hurwitz' arms. For two years it had been a battle between SPC and various "corporate raiders" of the "Drexel network", ending with Hurwitz emerging victorious.



Simplicity was incorporated in 1927 in New York as Simplicity Pattern Company, Inc.  Other than a couple of acquisitions and sales of subsidiaries between 1969 and 1971 (the purchase and sale of both Visual Statistics, Inc. and Education Consultant Service, Inc.) their corporate activities were centered almost entirely in the pattern-making business, with subsidiaries called either "Simplicity Patterns" or "Style Patterns" throughout the world from South Africa to Canada.



By 1980,SPC was a takeover "target" - perceived as undervalued, with good cash flow, money in the bank and low debt - because that is when several takeover attempts began.

          

The first takeover attempt was from within Simplicity's Board of Directors.  The Board included Marne Obernauer of Devon Group and John McMillan of Northwest Energy. Drexel's Corp. Michael Gallert had been on Devon's Board of Directors since 1969.



Devon Group began buying blocks of stock in 1980. Mysteriously, three reporting hoaxes - rumors about Simplicity - appeared during that year. In January, 1980, there was a false report of a 100% tender offer, followed by an equally false rumor of an acquisition announcement. Then on August 12, 1980, a third reporting hoax rumored an extraordinary dividend. Someone was putting Simplicity "in play".



The Devon management-buyout group turned down offers from F.S.C. (Stanley Sheinman) and Pier One Imports (J. B. Fuqua) in early 1981, but on March 3, Devon Group sold its block of Simplicity stock to NCC Energy, Ltd., a British corporation.  Obernauer and McMillan then resigned from the Simplicity Board, probably after making a good profit on their stock sales.

Drexel had brought Simplicity to the attention of NCC Energy, and by May 1981 was their investment advisor.



But a parallel development was occuring with another member of the Drexel Network, Victor Posner, Chairman of Southeastern Public Service Corp. of Miami.  On April 3, Posner announced the purchase of 1.6 million shares, or 11.4%, of Simplicity stock, and his willingness to buy up to 25.1% of Simplicity, maybe from NCC.  On April 7, Posner sold his stake in Simplicity - 1.36 million shares - to NCC, and the remainder of 250,000 shares in the open market.  NCC's stake rose to 15.4%.



By May 28, Simplicity Pattern and NCC Energy were said to be working toward a merger.  NCC was attempting to become a U.S. Corporation, instead of British, through the purchase of a producing american company..  Drexel, as NCC's advisor, was recommending the exchange of Simplicity shares for subordinated debentures (junk bonds) and warrants.



In June 1981, Peter Ackerman, of Drexel, recommended Simplicity stock to  Diversified Industries as a "risk-free" investment to produce a capital gain for Diversified (who had sought Drexel's aid in gaining such to preserve a tax loss carry-forward).  Ackerman had "a special, deep non-public knowledge that the sale would go through...".



This was insider trading.  Ackerman did not reveal, it was alleged in a lawsuit, that Drexel held an undisclosed position of more than 5% of Simplicity, or that Drexel would make $500,000 in fees if the NCC-Simplicity merger was completed.  Peter Ackerman worked in Michael Milken's office at Drexel, as part of his "core group". When no merger occurred the lawsuit was filed. No criminal charges were brought against Ackerman for this.  The suit was settled out of court.

 

In August 1981, another corporate raider in the Drexel network, Carl Icahn, had his investment group, Bayswater Realty & Capital, buy 11.2% of Simplicity.  Icahn then objected to the NCC-Simplicity merger.  Simplicity by this time had hired Dillon-Reed as their investment banker and advisor.  On September 12, Bayswater and Icahn announced a takeover try of Simplicity.  Icahn then owned 13% of Simplicity, NCC owned about 20% (2.1 million shares). On October 30, 1981, came the announcement of a merger of NCC Energy, Ltd. (UK), with Simplicity. Simplicity indicated they did not want Icahn, and on November 18 rejected his bid of $11.50 per share.  Icahn then withdrew.  NCC's offer of $13-$14 per share was judged inadequate.  NCC and Simplicity went back to the drawing board.  (At this point, Diversified, who bought on Ackerman's advice, lost their hoped-for gain).



Icahn sold his Simplicity stake to Walton Bond, Ltd., who was willing to support the new NCC bid.  Together, Walton and NCC now held 29% of Simplicity.



On December 16, Executive Life Insurance Company, another member of the Drexel network, bought 5.86% of Simplicity (805,200 shares) at $10.15 per share, "because the stock was undervalued" 



Why NCC, with 20%, plus backing from Walton (13%) and Drexel (5%-10%), was unable to takeover Simplicity, is unclear.



On May 7, 1982 MCOH bought 33% of SPC, 20% from NCC, 13% from Walton. The 13(D) said "for investment purposes only".  Hurwitz soon became chair of BOD, MCOH used bank credit of $100mm from 1st Interstate Bank of California. Forbes Feb. 13, 1984 says Hurwitz snatched Simplicity away from Victor Posner & Carl Icahn.

	 

On August 18,1982 SPC bought ELIC 1.4 million shares of SPC by issuing a $14.5mm note to ELIC (does the interest paid explain the allegation that SPC bought at 35% above the market?). SPC was otherwise debt free.



By the end of 1982, MCOH had acquired 4,576,000 shares or 37.7% Simplicity Com/stk. In November, 1983 SPC bought 309,400 of its own shares.



In February 1983 Robert L. Rosen left Shearson/American Express and Shearson Realty, to join Simplicity.

***



 Drexel And The UFG-USAT Takeover



In December 1982, FDC-MCOH gained presumptive control of UFG-USAT. A few months later UFG-USAT merged with First American Financial with its S&L sub Houston First American, controlled by Carl Lindner's American Financial Corp. FDC-MCOH held 23.3% of the survivor corporation, UFG-USAT.



In June 1983, FDC-MCO Holdings filed an application with the Federal Home Loan Bank Board to increase its holdings of UFG-USAT to more than 25% common and to establish clear control.



In June 1984, UFG-USAT issued Series C Convertible Pf Stock. FDC-FRC-MCOH bought 97.5% of this issue. Under the terms of the Pfd stock, upon the June 15, 1987 conversion date, Hurwitz's stake in UFG-USAT would increase by 15% to a total of 38.5%.  



In September, 1984, UFG-USAT sold 20 branches to Independent American S&L. This sale built USAT's networth to allow the issuance of a dividend to UFG and the purchase of junk bonds.



With deregulation of savings and loans on the horizon for 1982, and a Reagan - "get government off businesses' backs" mood sweeping the country, it is no surprise that Hurwitz chose this moment to acquire a string of savings and loans which at its height in 1985 became the largest savings and loan association in Texas as measured by assets. Kosberg and Struass' Gibraltar S&L was first measured by other measurements.



Incorporated in 1970 as Southwestern Group Financial, Inc. (SGF) with five savings and loans, SGF merged its savings subsidiaries into United Savings Association of Texas (USAT) in 1978, acquiring new branches in the process.  Kaneb Services acquired SGF and USAT in 1979, added World Savings, Parker Square Savings & Loan, and Wharton County Savings & Loan in 1981, and changed the name of SGF to United Financial Group (UFG) in 1981.  USAT, the savings and loan subsidiary of UFG, kept the same name.  It now had approximately 58 branches.



UFG carried with it a special covenant from a 1977 loan note issued, forbidding dividends except in special circumstances.  Yet in 1981, when Kaneb Services spun off UFG, a "special dividend" of UFG stock was distributed to Kaneb stockholders.  Also in 1981, UFG attempted to sell USAT to Daniel Ludwig.



On February 12, 1982, FDC and Federated Reinsurance filed a Schedule 13D reporting that Federated Reinsurance had purchased  7.86% of the outstanding shares of common stock of United Financial Group, Inc. (UFG).  The 13D--in accordance with Hurwitz' now familiar technique--stated that the acquisition was for "investment purposes".  In the first  amendment to the Schedule 13D, filed March 3, 1982, Federated Reinsurance declared that it had "no present intention to seek to acquire power to direct [UFG's] management or policies or to exercise control over [UFG] or any of its subsidiaries or affiliates".  That amendment also stated that Federated Reinsurance did not intend to purchase more than 10% of UFG's common stock.



Yet, contrary to the statements in Federated's 13D's, the entire takeover of UFG/USAT covered only a seven-month period.  By August 1982, FRC and MCOH had 23% of UFG stock, and Barry Munitz had been elected to the UFG Board.  By December, Hurwitz and MCO Holdings were described in 13D's as "control persons" of UFG.  So, by the time Ronald Reagan signed the Garn-St. Germain Act (October 15, 1982), Hurwitz had controlling interest (24%) in a large deregulated savings and loan.  As Reagan stated on the day he signed the Act into law, "all in all, I think we've hit the jackpot."



During the UFG takeover period (February-August 1982), Drexel Burnham Lambert (Drexel) entered the picture.  Drexel sold $260 million, face value, in "junk bonds" or "zeros" (zero coupon convertable senior subordinated notes) for MCO Holdings, the Zero(2007), which netted about $3.4 million for MCOH.  Within this same period, MCO Holdings lent Federated Reinsurance Corp. (FRC), a subsidiary of their mutual parent corporation FDC, the money to purchase UFG stock and Simplicity stock.  The junk bond sale thus formed a small "blind pool" of MCOH money for Hurwitz to use in acquisitions, with UFG and Simplicity the targets.  MCO Holdings became a large stockholder in UFG, as did Drexel Burnham Lambert.



It was FRC who initially took over UFG, but when FRC was sold in late 1982, FDC took its place in the ownership of UFG and USAT. In October FDC sold all the outstanding & issued shares in FRC to `an unaffiliated 3rd party'. FRC is sold to Holt Corp. for a cash price of $1,573,021, agreed not to compete in certain reinsurance business through October 27, 1984 for $100,000 per year for 10 years. All shares of MCOH, Maryland Realty Trust, UFG were transferred to FDC and two notes receivable with balances of $1,595,081 also were transferred to FDC. 



In December 1982, UFG and USAT engaged in a land sale transaction with Nu-West Florida.  A Board member of Nu-West was Loren Pratt who had been, until late in this period, Vice-President of McCulloch Properties and the director of Pratt Holding Company in Fountain Hills.  (Pratt Properties had become MCO Properties in 1980, and was a wholly-owned subsidiary of MCO Holdings.)  It is not clear whether Pratt was an officer of any part of the MCO/Hurwitz empire at the time of the land deal.  Because so much of the empire was real estate-oriented, and so many opportunities for cross-over existed between the twin worlds of real estate and securities (i.e., deeds, mortgages, etc.), the opportunity for self-dealing was great.



At the end of 1982  USAT regulatory net worth is $58,388,000 more than amount set by FSLIC. USAT  reports net worth to be $89,789,000 "actual"

= $76,311,000 (closing audit) In either case USAT exceeds regulatory

net worth on this date



Another major player in the Drexel network entered the Hurwitz scene in 1982, and lined up a deal which was to nearly double the size of USAT by early 1983.  This was Carl Lindner of American Financial Corporation, now most known for his ties to the infamous Charles Keating.  (Keating was an Executive Vice-President and director of American Financial Corp. ("AFC") prior to 1979, and also a founding partner of the law firm Keating, Muething & Klekamp, which represented AFC.  In July 1979, an SEC judgment entitled SEC v. Keating, Muething & Klekamp against Lindner, et al., enjoining them from self-dealing in an Ohio bank subsidiary.)  The same year, Keating bought Continental Homes of Phoenix from Lindner and renamed it American Continental Corporation, which then bought Lincoln Savings & Loan in 1983 with Drexel-issued junk bonds.  



Lindner's AFC had a subsidiary called PennCorp Financial which, in turn, had a subsidiary called First American Financial of Texas (FAF).  FAF had a subsidiary called Houston First American Savings Association (Houston First), which had 36 branches.  



In February 1982, just as the UFG takeover was occurring, UFG signed a loan agreement with FAF and PennCorp.  PennCorp at this time distributed 2.9 million shares of FAF as a dividend to PennCorp's shareholders, and retained 600,000 shares in connection with the sale of PennCorp to Tsai's American Can..  In August 1982, when Hurwitz was already in control of UFG, an agreement was signed between UFG and FAF to merge; a deal was made between MCO Holdings and AFC to accomplish this in August, and signed in December 1982.



Thus, United Financial Group (UFG), newly acquired by FDC and MCOH, merged with First American Financial (FAF), and the respective subsidiaries, USAT and Houston First, also merged.  An additional 36 branches were added to USAT's 58 branches, making a total of 94 branches when the merger was completed in April 1983.  However, 4 branches of USAT were sold in November 1982 to Olney Savings Association for a $6.6 million gain for UFG, so the total branches in April 1983 may have been 90.   Houston First's assets were $1.5 billion according to a 6/30/82 financial filing.



Early in January 1983, Hurwitz, personnally, bought 44,000 shares of "FAF of California", a separate corporation.  This may have been a mistake or a mistaken entry by the SEC's publication, because in March 1983, FDC bought 663,648 shares of "FAF of Texas" to increase their holdings.  FAF,Ca had John H Sculley and John H Roberts Jr (see Rosenberg) as directors. Hurwitz and Kozmetsky were elected to the FAF,Tx Board in January 1983, before the completion of the merger in April.



The April 1983 merger of UFG and FAF provided $1.1 billion in a loan portfolio to UFG and the addition of $550 milion in Goddwill to the assets of UFG.  During that month, FDC traded 7.4 million shares of FAF for 523,000 shares of UFG, and 2 million shares of UFG were issued to FAF stockholders.



UFG, now doubled in size and firmly under Hurwitz' control, used a subsidiary called United Financial Corporation (UFC), to attack, in March 1983, Castle and Cooke Corporation.  MCO Holdings also participated in the attack.

  

In 1983 the Recession ended. Milken was ready to move to new plateau.

Drexel and Michael Milken began the "Enterprise" and began raising funds for the Boesky organization.                                  



In April, Drexel financed MGM-UA for $400 million, its largest offering to

date.



Forbes quotes a Hurwitz' detractor, speaking of this era, that "He has cut a few too many corners to get what he wants"



In April MCOH began acquiring Ensource stock. In May, 1983 Hurwitz took Home Centers of America public.  This offerring involved many members of the Texas Network including Rosenberg and John Connally.                       

             

Twin Fair



In April 1983 SPC and MCOH acquired control of the REIT Twin Fair, which became a sub of SPC's successor corporation Maxxam and was later renamed Maxxam Properties Inc. Twin Fair held real estate in NY & Fla. and a $21 million tax carry forward. On April 27, 1983 SPC bought 125,000 shares of Twin Fair from MCOH and agreed to buy another 125,000 shares of Twin Fair from MCOH for $12.5 million. In September SPC bought more of Twin Fair for a total of $25 million and a 68.8% interest.



SPC's 10K states?: Between May 31, 1983 and June 7, 1983, Simplicity (or MCOH?) purchased on the open market 435,000 shares of common stock of a New York Stock Exchange Company for an aggregate purchase price of $13,708,062. On June 7, 1983, the Company purchased on the open market 475,000 shares of such issuer for an aggregate purchase price of $14,986,250. The funds used by the Company to purchase the common stock of such issuer were borrowed from Simplicity pursuant to a non-interest bearing note. On that same date, the Company agreed to sell, and Simplicity agreed to purchase, the 475,000 shares purchased by the Company for $31.55 per share, less any dividends received by the Company in respect of such shares, subject to the expiration of the application waiting period under the  Hart-Scott-Rodino  Antitrust  Improvements Act of 1976. On July 8, 1983, Simplicity purchased the 475,000 shares owned by the Company for $31.55 per share, or $14,9986,250 in the aggregate. Simplicity paid such purchase price by cancellation of the promissory note referred to above. On August 16, 1983, Simplicity purchased in the open market an additional 223,400 shares for $7,048,270. In December 1983, an agreement was reached under which substantially all of such shares of such New York Stock Exchange company were exchanged for an equal number of shares of new issue of preferred stock as well as the provision that such preferred shares may be purchased from Simplicity in August 1984 for $53,000,000 plus accrued dividends





A December 1983 Twin Fair self-tender boosts SPC & MCOH to 96% ownership.    By early 1984 MCOH & SPC have 100% of Twin Fair.



Apr. 24, 1984	Note issued to Twin Fair Holdings by Carteret S&L, F.A. sub   Carteret Commercial Mortgage.



In Sep.84	Hurwitz through Twin Fair, a Simplicity  subsidiary, attacks Holly Sugar; leads to "Greenmail"    

***