1 UNITED STATES OF AMERICA
BEFORE THE
2 OFFICE OF THRIFT SUPERVISION
DEPARTMENT OF THE TREASURY
3
In the Matter of: )
4 )
UNITED SAVINGS ASSOCIATION OF )
5 TEXAS, Houston, Texas, and )
)
6 UNITED FINANCIAL GROUP, INC., )
Houston, Texas, a Savings )
7 and Loan Holding Company )
) OTS Order
8 MAXXAM, INC., Houston, Texas, ) No. AP 95-40
a Diversified Savings and ) Date:
9 Loan Holding Company ) Dec. 26, 1995
)
10 FEDERATED DEVELOPMENT CO., )
a New York Business Trust, )
11 )
CHARLES E. HURWITZ, )
12 Institution-Affiliated Party )
and Present and Former Director )
13 of United Savings Association )
of Texas, United Financial Group,)
14 and/or MAXXAM, Inc.; and )
)
15 BARRY A. MUNITZ, JENARD M. GROSS,)
ARTHUR S. BERNER, RONALD HUEBSCH,)
16 and MICHAEL CROW, Present and )
Former Directors and/or Officers )
17 of United Savings Association of )
Texas, United Financial Group, )
18 and/or MAXXAM, Inc., )
)
19 Respondents. )
20
21 TRIAL PROCEEDINGS FOR OCTOBER 8, 1998
22
25451
1 A-P-P-E-A-R-A-N-C-E-S
2 ON BEHALF OF THE AGENCY:
3 KENNETH J. GUIDO, Esquire
Special Enforcement Counsel
4 PAUL LEIMAN, Esquire
SCOTT SCHWARTZ, Esquire
5 BRUCE RINALDI, Esquire
RICHARD STEARNS, Esquire
6 and BRYAN VEIS, Esquire
of: Office of Thrift Supervision
7 Department of the Treasury
1700 G Street, N.W.
8 Washington, D.C. 20552
(202) 906-7395
9
ON BEHALF OF RESPONDENT MAXXAM, INC.:
10
FRANK J. EISENHART, Esquire
11 of: Dechert, Price & Rhoads
1500 K Street, N.W.
12 Washington, D.C. 20005-1208
(202) 626-3306
13
DALE A. HEAD (in-house)
14 Managing Counsel
MAXXAM, Inc.
15 5847 San Felipe, Suite 2600
Houston, Texas 77057
16 (713) 267-3668
17 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND
CHARLES HURWITZ:
18
RICHARD P. KEETON, Esquire
19 KATHLEEN KOPP, Esquire
of: Mayor, Day, Caldwell & Keeton
20 1900 NationsBank Center, 700 Louisiana
Houston, Texas 77002
21 (713) 225-7013
22
25452
1 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO.,
CHARLES HURWITZ, AND MAXXAM, INC.:
2
JACKS C. NICKENS, Esquire
3 of: Clements, O'Neill, Pierce & Nickens
1000 Louisiana Street, Suite 1800
4 Houston, Texas 77002
(713) 654-7608
5
ON BEHALF OF JENARD M. GROSS:
6
PAUL BLANKENSTEIN, Esquire
7 MARK A. PERRY, Esquire
of: Gibson, Dunn & Crutcher
8 1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5303
9 (202) 955-8500
10 ON BEHALF OF BERNER, CROW, MUNITZ AND HUEBSCH:
11 JOHN K. VILLA, Esquire
MARY CLARK, Esquire
12 PAUL DUEFFERT, Esquire
of: Williams & Connolly
13 725 Twelfth Street, N.W.
Washington, D.C. 20005
14 (202) 434-5000
15 OTS COURT:
16 HONORABLE ARTHUR L. SHIPE
Administrative Law Judge
17 Office of Financial Institutions Adjudication
1700 G Street, N.W., 6th Floor
18 Washington, D.C. 20552
Jerry Langdon, Judge Shipe's Clerk
19
REPORTED BY:
20
Ms. Marcy Clark, CSR
21 Ms. Shauna Foreman, CSR
22 .
25453
1
2 INDEX OF PROCEEDINGS
3
Page
4 BARRY MUNITZ
5 Continued Examination by Mr. Guido......25454
6 Examination by Mr. Villa................25602
7 Further Examination by Mr. Rinaldi......25627
8 .
9 .
10 .
11 .
12 .
13 .
14 .
15 .
16 .
17 .
18 .
19 .
20 .
21 .
22 .
25454
1 P-R-O-C-E-E-D-I-N-G-S
2 (9:00 a.m.)
3 THE COURT: Be seated, please. The
4 hearing will come to order.
5 Mr. Guido, you may continue with your
6 examination.
7 MR. GUIDO: Thank you, Your Honor.
8
9 CONTINUED EXAMINATION
10
11 Q. (BY MR. GUIDO) When we broke last
12 evening, Dr. Munitz, I was asking you some
13 questions about Mr. Huebsch. Did -- I would like
14 to finish that line of questioning, if I may.
15 Did Joe Phillips -- was his supervisor
16 Ron Huebsch during the time that Joe Phillips was
17 at USAT?
18 A. That would have been in the early
19 Eighties. I remember Ron Huebsch as being one of
20 the people with whom Mr. Phillips would have
21 worked most closely. I'm not sure about the
22 direct sense of supervisor -- I couldn't say that
25455
1 he wasn't, and I do recall that that probably was
2 the closest relationship he would have had, the
3 financial officers at -- I think we were saying a
4 little bit yesterday about the role of financial
5 officers at USAT.
6 Q. Did USAT have an organizational
7 structure?
8 A. Yes.
9 Q. Was Ron Huebsch in that organizational
10 structure?
11 A. Well, as related to certain areas of
12 responsibility, I saw him as playing a role. I
13 don't have a chart in front of my mind.
14 Q. Prior to Sandy Laurenson's arrival, was
15 he the head of investments?
16 A. I don't -- I just don't recall
17 specifically what his title was at that point.
18 Q. Who did Ron Huebsch report to?
19 A. As related to -- again, he was working
20 on his time in different companies. So, I'm
21 assuming you mean as relates to United Savings?
22 Q. Yes.
25456
1 A. Well, again, I assumed that his
2 supervisors would have been in the financial
3 organizational line so that it would have been
4 probably for most of that time, in my mind,
5 Mr. Crow.
6 Q. Take a look at your transcript of
7 April 3rd, 1997.
8 MR. GUIDO: I have another copy for the
9 Court.
10 Q. (BY MR. GUIDO) Now, look at Page 39.
11 A. May I remove this staple, Mr. Guido?
12 Q. Pardon?
13 A. May I remove this staple?
14 Q. Sure.
15 A. Okay.
16 Q. Look at Page 39. There's a colloquy in
17 there about Mr. Huebsch on that page. And on
18 Line 13, it says, "Let me ask the questions. I'll
19 ask another. Did Mr. Huebsch report to you?"
20 ANSWER: "No."
21 Do you see that?
22 A. Yes.
25457
1 Q. And "who did he report to" is the next
2 question. Will you read the response into the
3 record?
4 A. Line 17, "For most of the time on most
5 activities, he" -- 18 -- "would have reported to
6 Mr. Hurwitz."
7 Q. All right. Does that refresh your
8 recollection of who Mr. Huebsch reported to at the
9 time that you were at USAT?
10 A. Well, it does in one sense. I'm just
11 not sure whether that represents -- I don't know
12 the context here. And if I had been answering
13 that as related to Federated, for example, he
14 clearly would have reported to Mr. Hurwitz.
15 So, I'm just not sure which company was
16 referred to on that Page 39.
17 Q. Is this OTS proceeding an investigation
18 of the management of United Savings Association or
19 the management of Federated?
20 MR. VILLA: I'll object to that
21 question.
22 THE COURT: Would you repeat the
25458
1 question?
2 Q. (BY MR. GUIDO) Is the -- is this
3 proceeding a proceeding challenging the management
4 of Federated or the management of United Savings
5 Association of Texas?
6 MR. VILLA: Object to the question.
7 THE COURT: Well, I think we know who
8 the respondents are in this case.
9 Q. (BY MR. GUIDO) What's your
10 understanding, Mr. Munitz?
11 THE COURT: Can you answer the
12 question?
13 A. Well, I assume, again, that the basic
14 interaction dealt with United -- with the insured
15 institution, but I've also -- you have reminded me
16 repeatedly that other companies are involved here.
17 So, I'm -- I guess the proceeding involves the
18 insured thrift institution.
19 Q. (BY MR. GUIDO) Is your testimony today
20 that with regard to the activities of USAT,
21 Mr. Huebsch did not report to Mr. Hurwitz?
22 A. I'm looking at the page where you
25459
1 directed me. Right underneath there, I say, "Ask
2 me the question again."
3 And then I believe that's me saying,
4 "Not necessarily for UFG and USAT because when he
5 was working on issues related to UFG and USAT, he
6 was, at least in my presence, at the investment
7 committee when I was there working with Gerry
8 Williams, with Jenard Gross."
9 That was the point that I was trying to
10 make.
11 Q. Well, let me -- there's a question in
12 between there where I asked you whether or not he
13 would refuse or not discuss his activities with
14 anyone except Hurwitz.
15 Do you see that?
16 A. I see that. Again, it's -- what I was
17 saying was ask me the question again because,
18 again, I just wasn't understanding the question.
19 Q. I'll ask you the question today --
20 MR. KEETON: Your Honor, before he does
21 that, under the rule of optional completeness,
22 let's get this clear. I want to read it beginning
25460
1 at Page 40, Line 2. This is Dr. Munitz. "Ask me
2 that question again, the whole question."
3 Question by Mr. Guido: "Would this
4 sentence 'would not discuss his activities with
5 anyone except H' describe your view of
6 Mr. Huebsch's approach to his work for UFG and
7 USAT?"
8 ANSWER: "Not necessarily for UFG and
9 USAT."
10 QUESTION: "Okay. Why not not
11 necessarily?"
12 ANSWER: "Because as he was working on
13 issues related to UFG and USAT, he also talked, at
14 least in my presence, at the investment committee
15 when I was there and other occasions with both
16 Gerry Williams and particularly with Jenard
17 Gross."
18 Q. (BY MR. GUIDO) Did Mr. Huebsch report
19 to Charles Hurwitz on his activities on behalf of
20 USAT?
21 A. Now, again, when you say "report," I
22 was asked a question yesterday by Mr. Rinaldi, was
25461
1 I reporting to in the sense of talking to and
2 relating -- you just said to me did he report on
3 Mr. Hurwitz on his activities. Did you mean as a
4 supervisory person or did he talk to him about it?
5 I'm just -- as you can see, I was confused --
6 Q. As a supervisory person. As one of the
7 supervisory people over the activities of USAT,
8 did Ron Huebsch report to Charles Hurwitz?
9 A. I did not perceive that that was a
10 direct and sole reporting line as Mr. Huebsch
11 related to USAT and UFG matters.
12 Q. So, Mr. Hurwitz, you're saying, wasn't
13 his supervisor in that term? Is that what you're
14 saying?
15 A. All I'm saying is that as Mr. Huebsch
16 did work related to UFG and USAT, as I saw him, as
17 I interacted with him at those times that I was at
18 the investment committee, the interaction I saw
19 Mr. Huebsch have was with Mr. Crow, Gerry
20 Williams, and Jenard Gross much more than I saw
21 him have interaction with Mr. Hurwitz.
22 Q. Did you see him have interaction with
25462
1 Mr. Hurwitz about the activities of USAT?
2 A. I saw him talk from time to time with
3 Mr. Hurwitz about USAT's activities, yes.
4 Q. Let's move to another topic, and that
5 is: Have you had or did you have discussions with
6 Mr. Hurwitz at the time that MAXXAM and Federated
7 or MCO and Federated were acquiring interests in
8 the stock of UFG about the Garn-St. Germain
9 statute?
10 A. Okay. That's 16 years ago. At this
11 time, I don't remember specific reference to
12 Garn-St. Germain. I just don't recall right now.
13 Q. Okay. Did you, at the time that MCO
14 and Federated were acquiring stock in UFG, have
15 discussions with Charles Hurwitz in which he
16 related to you that he understood that there was a
17 33 to 1 capital-to-asset ratio in thrifts?
18 A. Again, I just -- a 16-year-ago
19 conversation when I saw -- I was just arriving, I
20 saw him in different settings. I just can't at
21 this point comment specifically on exchanges we
22 might have had.
25463
1 Q. So, you don't recall?
2 A. I don't recall specifically a
3 16-year-ago conversation.
4 Q. Take a look at the larger transcript,
5 the June 8th, 1995 transcript of your deposition?
6 MR. VILLA: Your Honor, I point out
7 again that the examination by Mr. Rinaldi asked
8 the same questions about exactly the same time
9 period slightly differently worded. Instead of
10 asking him about specific questions and answers,
11 he said, "What did Mr. Hurwitz find interesting
12 about USAT? What did you discuss with Mr. Hurwitz
13 about the interesting aspects of USAT? Tell us
14 everything you recall about that."
15 Now, we went through that with
16 Mr. Rinaldi for probably 45 minutes. As a matter
17 of fact, with every board meeting, he asked, "And
18 what else defined interesting about USAT?"
19 Now we're going through the same
20 issues; but instead of using the word
21 "interesting," we're going back on a
22 question-by-question basis. I point this out
25464
1 because this is repetitive questioning, and they
2 are going at the same issue by two different
3 examiners. And that's one thing the Court's
4 ruling did not permit them to do. If Mr. Rinaldi
5 hadn't gone into the issue, I wouldn't be up and
6 objecting now.
7 MR. KEETON: Your Honor, I join in that
8 objection. The whole motivation for buying the
9 stock and how much they were going to buy was gone
10 into my Mr. Rinaldi. If he didn't ask the
11 specific question, it doesn't mean Mr. Guido can
12 go in behind him and fill in the gaps.
13 MR. RINALDI: Your Honor, I showed him
14 a board minute in which the chairman of the board
15 said, "I have an opportunity to acquire UFG
16 shares, and it appears to me to be an interesting
17 opportunity." I asked him if he had any
18 conversation about that interesting opportunity.
19 I did not ask him about Garn-St. Germain. I did
20 not ask him about leveraging. I did not ask him
21 about 33 to 1.
22 None of the materials Mr. Guido is
25465
1 asking him about were part of my examination. I
2 restricted my examination to what was going on at
3 the board minutes where Mr. Hurwitz was at the
4 board and what he told the board with respect to
5 those particular minutes.
6 MR. KEETON: I adhere with my objection
7 and join with Mr. Villa. Very tricky if that's
8 how they are interpreting Your Honor's order.
9 They are covering the same areas with two lawyers.
10 THE COURT: Seems to me Mr. Rinaldi
11 covered the control subject. I thought Mr. Guido
12 was going to get into the investments. Last
13 evening, we started to get into the equity
14 arbitrage and those issues. I thought that's why
15 we had this division of labor. You were the
16 investments person, and Mr. Rinaldi covered these
17 areas of control and the takeover and all that.
18 We had an extensive examination about that.
19 MR. GUIDO: I'm sorry, Your Honor. I
20 am transitioning into the wholesale strategy right
21 here. In fact, this page that I've directed the
22 witness to does exactly that, Your Honor.
25466
1 THE COURT: All right. Let's get --
2 MR. GUIDO: I'm not going into the
3 motivation for the purchase of the thrift. What
4 I'm going into is what Charles Hurwitz' role was
5 and what Mr. Munitz' role was in setting the
6 investment direction of the thrift. This was a
7 transition question, and the answer to the -- to
8 the question I asked the witness to refresh his
9 recollection --
10 THE COURT: All right. Well, let's
11 hear what your question is.
12 MR. GUIDO: -- to look at Page 141 of
13 this transcript.
14 THE COURT: Let's move along.
15 Q. (BY MR. GUIDO) Page 141 of the
16 June 8th, 1995 transcript. It talks about
17 there -- it says, Question, "When he spoke to you
18 in terms of Garn-St. Germain, did he indicate to
19 you that because of that legislation, it was his
20 view that it could be used for takeover
21 activities?"
22 ANSWER: "No, not for takeover
25467
1 activities but for a broader range of more
2 wholesale-oriented investment type ventures." And
3 then it says "but." Then I asked you another
4 question.
5 MR. KEETON: Your Honor, I object if
6 this is a question or if it's not just reading
7 something into the record that is in violation of
8 Your Honor's order about sustaining the objection.
9 He's still into the control and the purchase of
10 the investment. He's not into the areas he's
11 supposed to be covering.
12 THE COURT: I think we're getting there
13 pretty shortly.
14 MR. GUIDO: Thank you, Your Honor.
15 Q. (BY MR. GUIDO) Now, was Charles Hurwitz
16 a leading proponent of the wholesale strategy at
17 USAT?
18 A. He was one of the people, as I recall,
19 in the strategic planning conversations who argued
20 that we had to make a change from what we had been
21 doing earlier around the board table, yes.
22 Q. Take a look at that same deposition
25468
1 transcript, Page 74. And I'll direct your
2 attention to Line 7 through Line 9. Let me back
3 up, and I'll put it -- start at Page 24, Line --
4 Page 74, Line 24, the first question that puts it
5 into context.
6 "Based upon your conversation with
7 Mr. Hurwitz, did he feel that this was an
8 opportunity to convert United to a wholesale
9 operation?"
10 ANSWER: "I think the UFG board was
11 having that conversation; and he was one of the
12 talkers, as was I. I mean, we were both directors
13 of the UFGI board at that point; so, it need not
14 take a separate confidential walled-off exchange.
15 It was right out there on the table."
16 Do you see that?
17 A. Yes.
18 Q. And then my question is: "I understand
19 that. In that context, he was a leading proponent
20 that they go to this wholesale strategy."
21 What was your answer?
22 A. "Yes, sir."
25469
1 Q. Is that your testimony today?
2 A. Yes, sir.
3 MR. KEETON: Your Honor, that's the
4 whole point. We've now got four times the same
5 answer in the record. I don't know what
6 Mr. Guido's purpose in this is, but I think
7 Your Honor needs to take control of this. He
8 can't impeach the witness when the witness gave
9 the exact answer he's now read to him three times.
10 MR. GUIDO: Your Honor, I think the
11 witness clarified his answer by reading what his
12 response was.
13 THE COURT: I didn't perceive any
14 difference, but let's get to your investment
15 issues.
16 Q. (BY MR. GUIDO) Now I would like to move
17 to another topic, and that is: Did Charles
18 Hurwitz have any role with regard to setting the
19 profit targets for USAT?
20 A. Well, I think particularly in the time
21 when he was the chair of the United Financial,
22 Inc. board, as I recall now, around -- since --
25470
1 again, I mentioned to Mr. Rinaldi yesterday United
2 Savings was the major asset of United Financial
3 Group, Inc. Mr. Hurwitz was the chairman of the
4 UFGI board. So, although I don't recall
5 specifically those conversations, in my mind I
6 would assume he would be one of the participants
7 in that exchange, yes.
8 Q. I would like to show you a document
9 that's been marked as 4340, which is the minutes
10 of the annual meeting of the shareholders of
11 United Financial Group --
12 MR. EISENHART: Your Honor, could we
13 have a real identification of this exhibit?
14 MR. GUIDO: I'm sorry. B4340 was the
15 minutes of the annual meeting of the
16 shareholders --
17 MR. EISENHART: It would simply help to
18 know if it was in evidence and, if so, if there
19 was a tab number. After 103 days, I would think
20 that procedure would have sunk in.
21 MR. GUIDO: Your Honor, it's B4340,
22 which are the minutes of the annual meeting of the
25471
1 shareholders of United Financial Group, Inc.,
2 dated April 30th, 1985.
3 MR. BLANKENSTEIN: Mr. Guido, do you
4 have extra copies of that?
5 MR. KEETON: It's not on the list.
6
7 (Discussion held off the record.)
8
9 MR. GUIDO: I think it is on the list,
10 Mr. Keeton.
11 MR. NICKENS: It's on the supplemental
12 list. We were looking at the original list. It's
13 on the supplemental list, and we have it.
14 THE COURT: All right. Let's proceed.
15 Are you offering this exhibit?
16 MR. GUIDO: I move B4340 into the
17 record.
18 Q. (BY MR. GUIDO) Take a look at --
19 MR. VILLA: No objection.
20 THE COURT: Received.
21 Q. (BY MR. GUIDO) Take a look at Page 3 of
22 the document, Dr. Munitz.
25472
1 Do you see Page 3 of the exhibit?
2 A. Yes.
3 Q. Do you see where it says "Mr. Hurwitz
4 discussed" -- the fifth paragraph down?
5 A. Uh-huh, yes.
6 Q. -- "discussed the company's earnings
7 and his desire to smooth out the
8 quarter-to-quarter earnings of the company"?
9 A. Yes.
10 Q. Now, my question for you is: Did
11 Charles Hurwitz set the profit targets for the
12 association?
13 A. Again, I just want to be sure -- I
14 think the company that's being referred to here is
15 United Financial Group.
16 Q. Which you've testified, have you not --
17 A. I just want to be sure that -- was the
18 question you were asking me about United Financial
19 Group?
20 Q. United Savings Association --
21 A. Okay. I wanted to be sure I understood
22 the question. I think he was, as I say, one of
25473
1 the key people participating in planning about
2 both the holding company and the association.
3 Q. Now, did there exist an entity called
4 the strategic planning committee for USAT?
5 A. Yes. Over a certain period of time,
6 yes.
7 Q. And who were the members of that
8 committee?
9 A. Well, I don't know if I could tell you
10 specifically who they all were; and it was an
11 informal group. It wasn't a line operating
12 committee designated by the board, as I recall.
13 But it would have essentially been the key
14 managers of the association and the holding
15 company. In most instances, those were the same
16 people. And then probably experts inside would
17 have come, depending upon the topic.
18 Q. Now, I would like to direct your
19 attention to Tab 1294, which is Exhibit B3925,
20 which is a memorandum from Mike Crow dated
21 April 28th, 1986. B3925, Tab 1294.
22 Have you had a chance to review that?
25474
1 A. The single sheet?
2 Q. Yes.
3 A. Yes.
4 Q. Now, I would like you -- does that
5 refresh your recollection of who the specific
6 individuals were that were members of the
7 strategic planning committee?
8 A. Basically, yes, although the point I
9 was trying to make was that that -- I'm -- if you
10 had shown me another invitation to another meeting
11 of the strategic planning group, in all likelihood
12 it would have had some different people. I'm not
13 certain those were all specifically the members,
14 but that sounds basically like the core group.
15 For example, Ron Huebsch -- I would be surprised
16 if Ron Huebsch was a regular member of the
17 strategic planning committee.
18 Q. Were you a regular member of the
19 strategic planning committee?
20 A. Oh, yes.
21 Q. Was Gerald Williams a regular member?
22 A. Yes.
25475
1 MR. KEETON: Your Honor, could you ask
2 Mr. Guido to speak up?
3 MR. GUIDO: I'm sorry.
4 MR. KEETON: Thank you.
5 Q. (BY MR. GUIDO) Gerald Williams, I think
6 you said "yes"?
7 A. Yes.
8 Q. Was Michael Crow a regular member?
9 A. Well, again, as I say, this wasn't a
10 formal operating line responsible group. But Mike
11 Crow had the sort of role where he was either a
12 member or he would have regularly been at that
13 group.
14 Q. And was Jenard Gross?
15 A. In the time that he was there, yes, he
16 would be -- in my judgment, it would have been
17 hard to imagine having some conversation of
18 strategic planning where, if Mr. Gross was
19 available, he wouldn't have been there.
20 Q. Was Charles Hurwitz?
21 A. In many instances, he would have been a
22 person we would have invited to that conversation,
25476
1 yes.
2 Q. Now, I would like to direct your
3 attention to the investment committee now.
4 A. Okay.
5 Q. When was the investment committee set
6 up?
7 A. I couldn't tell you right now
8 specifically the time. I don't know.
9 Q. Okay. Was there -- were there
10 different investment committee -- was there a
11 different investment committee for UFG than there
12 was for USAT?
13 A. I don't recall.
14 Q. Was the -- was there essentially one
15 functioning investment committee?
16 A. I mean, my memory at this point is an
17 investment committee that essentially looked at
18 issues related to UFG and USAT, although it --
19 there would have been such a natural overlap, it
20 wouldn't surprise me if that were the case.
21 Q. So, if the minutes show that there were
22 joint meetings, then you wouldn't have any dispute
25477
1 about that?
2 A. Well, I wouldn't have any dispute with
3 what the minutes showed normally anyway. But in
4 this case, I agree with you.
5 Q. Now, did Charles Hurwitz attend
6 investment committee meetings when you were at UFG
7 and USAT?
8 A. Not every one of them but regularly,
9 yes.
10 Q. Now, how did -- do you recall the
11 origination of USAT's investments in
12 mortgage-backed securities?
13 A. The origination?
14 Q. Uh-huh.
15 A. No.
16 Q. Do you recall whether -- how you
17 learned that USAT was going to be making
18 investments in mortgage-backed securities?
19 A. Well, here again, both a long time past
20 and not an area of expertise; but if I'm not
21 mistaken, I think there were some mortgage-backed
22 securities either or both already underway at
25478
1 United or perhaps -- I might be confusing that
2 with the institution we were discussing yesterday
3 with which we merged. But my vague recollection
4 is there were some mortgage-backed securities on
5 either or both of those activity lists as I was
6 arriving.
7 Q. Well, in terms of the expansion in
8 let's say 1984, do you recall that?
9 A. Well, we had talked yesterday about the
10 arrival of Joe Phillips and fixed income
11 activities. So, I remember his arriving -- and I
12 think he was at American General -- and some more
13 complex activity in that time period.
14 Q. Did you attend any presentations of
15 investment bankers regarding mortgage-backed
16 security risk-controlled arbitrage programs?
17 A. Yes.
18 Q. And who were those investment bankers?
19 A. Well, I believe that there were
20 several; and I don't know that I sat in on all of
21 them. The one that comes to mind as you ask the
22 question, I think, is Salomon Brothers.
25479
1 Q. Do you recall when that occurred?
2 A. No.
3 Q. I would like you to look at Tab 242,
4 B377.
5 THE COURT: Is that B377?
6 MR. GUIDO: B377, Your Honor.
7 Q. (BY MR. GUIDO) Does that refresh your
8 recollection of about the time that USAT was
9 expanding its investments in mortgage-backed
10 securities?
11 A. Well, I don't -- again, I'm assuming
12 you don't want me to read this. So, what it --
13 what it says to me is that there was a
14 presentation by Salomon Brothers on the 24th of
15 October 1984 to United Savings of Texas. I don't
16 know if that was the one to which I was referring.
17 I don't know what this is about.
18 Q. Well, was the Salomon presentation on
19 that date at about the time that USAT was
20 increasing its investments in high-yield bonds and
21 equity arbitrage?
22 A. I don't remember the exact timing, but
25480
1 it seems to me roughly the time period that Joe
2 Phillips was arriving. I can't comment now, but
3 I've got no reason to not feel it's in roughly
4 that period.
5 Q. What was the original reason for hiring
6 Joe Phillips?
7 A. My recollection was the desire to have,
8 as part of the management group, someone with more
9 experience in fixed income investments.
10 Q. High-yield bonds?
11 A. I think to the extent to which you
12 would call high-yield bonds within a fixed income
13 category and that that was his experience, I
14 suspect yes.
15 Q. Wasn't that his prior experience?
16 A. I commented again yesterday what I
17 recall about Mr. Phillips -- and I think it was at
18 American General -- that his broad experience, as
19 contrasted with the equity side, was more on the
20 fixed income side. I don't know specifically,
21 Mr. Guido, what part of that. I just don't
22 remember.
25481
1 Q. Now, did Jenard Gross and Charles
2 Hurwitz inform you that they wanted the
3 mortgage-backed security portfolio to increase at
4 about the time of the Salomon presentation?
5 A. Can I separate -- there are two parts
6 of the question. Let me comment to the latter. I
7 can't say right now specifically as to the timing.
8 So, if you'll allow me, I'd like to take that part
9 separately.
10 I don't remember exactly the timing,
11 but Salomon Brothers is a company that I remember
12 making a presentation. So, that sounds, timing,
13 right.
14 Then back to the first part. I don't
15 know that Mr. Gross was there in 1984; but at some
16 point during the strategic planning conversations
17 and around the board table, both Mr. Hurwitz and
18 Mr. Gross would have been amongst the people
19 talking about that strategic direction.
20 Q. Did they -- either Mr. Gross or
21 Mr. Hurwitz -- at any time ask you to recruit
22 somebody to manage the mortgage-backed securities
25482
1 portfolio?
2 A. At any time?
3 Q. Uh-huh.
4 A. Yes. They would have been two of the
5 people who asked me to be in the middle of
6 recruitment that led to Sandy Laurenson's hiring,
7 for example.
8 Q. What about Joe Phillips?
9 A. Well, I would have -- again, as I told
10 Mr. Rinaldi yesterday, I just have less clear of a
11 recollection because that would have been several
12 years before that. I'm pretty clear on the
13 process of Sandy Laurenson because I was right in
14 the middle of that one. I just don't remember as
15 well the Joe Phillips hiring.
16 Q. Why did they tell you -- either
17 Mr. Gross or Mr. Hurwitz -- tell you that they
18 wanted to recruit someone with Sandy Laurenson's
19 qualifications?
20 A. I think by then, it's -- I don't
21 know -- probably a couple of years after this date
22 you've shown me. That exchange I remember more
25483
1 clearly with Mr. Gross where we had had subsequent
2 to this a number of other consultants and
3 conversations with other financial institutions
4 about fixed income paper, about mortgage-backed
5 securities. And the conclusion reached by all of
6 us was that, again, we wanted to further
7 strengthen the portion of the management team that
8 had experience in that area. Their request to me
9 was to look everywhere we could look and try to
10 find the strongest possible person for that role.
11 Q. Why did they want to strengthen the
12 team? Did they tell you?
13 A. Well, they probably -- I can't at this
14 time comment what they said. I could give you a
15 feel for my sense of it.
16 Q. Go ahead. What was your understanding?
17 A. My sense of it was that it was an area
18 that we were gaining great and great understanding
19 of; that amongst our strategic choices, it was an
20 activity that made sense to us; and that, as in
21 all things we did, no differently than they said
22 to me, "We think that that money desk activity
25484
1 makes sense, and let's find the strongest possible
2 person." That led to Jim Jackson. It was the
3 same exchange regarding "Let's find the strongest
4 possible person for this other strategic area of
5 the company."
6 Q. Well, you already had Joe Phillips
7 managing the mortgage-backed security portfolio,
8 didn't you?
9 A. I can't comment specifically on the
10 timing. The only thing I recall was -- again,
11 this would not have been strange at all -- if this
12 is an area we want to be involved and it's a
13 complicated area, let's be absolutely certain that
14 we have the best possible people.
15 Q. Now, what were the purposes of the
16 mortgage-backed security portfolio?
17 A. Well, in general, my sense of it was
18 to -- that it would be one component of an overall
19 financial strategy. That part, as I recall,
20 basically geared to, in general, obviously the
21 generation of revenue. I think that was the
22 purpose of everything we were doing. And
25485
1 specifically in this way, to create a yield income
2 over time that would strengthen the bottom line.
3 Q. How was it to generate a yield income
4 or spread?
5 A. Well, you're about to enter an area
6 where I move precariously in terms of my own
7 knowledge and particularly after all of this time.
8 My general sense was that by matching certain
9 assets and certain liabilities without any
10 scientific certainty, that what Salomon Brothers
11 and others were saying were this was a financial
12 strategy that, in all likelihood, would generate a
13 yield positive impact on the bottom line.
14 Q. Well, how were you to protect against
15 interest rate shifts?
16 A. Well, again, my feel -- I'm not sure
17 that anyone was guaranteeing that you could
18 protect against interest rate shifts. I remember
19 either Salomon Brothers or someone else making a
20 presentation that had an overhead that looked at
21 historically here's how interest rates have
22 shifted and, in all likelihood, they shift in this
25486
1 pattern up and this pattern down and that in
2 certain combinations of assets and liabilities and
3 there were -- again, without being able to
4 scientifically define them -- hedges and swaps
5 related to the mortgage-backed securities that
6 would generate that revenue.
7 Q. Well, was it your understanding, then,
8 that what was being proposed was a risk-controlled
9 arbitrage in which short-term funding of reverse
10 repurchase agreements were used to finance
11 purchases of mortgage-backed securities and the
12 interest rate risk was to be hedged with swap
13 agreements?
14 A. Well, you've just told me a lot more
15 than I either knew or remembered. I'm just not
16 sure at this point in time about that level of
17 detail, Mr. Guido. I ought not to comment on that
18 degree of specificity.
19 Q. So, you don't know?
20 A. I don't right now remember that level
21 of detail.
22 Q. Let's take a look at your June 8th,
25487
1 1995 transcript at Page 1 --
2 A. Is that the big one?
3 Q. The big one. Page 154 through 155
4 starting on Line 10 of 154 through Line 19 of
5 Page 155.
6 A. Sir, I want to be sure I have the
7 right -- Line 10 says, "Mr. Stuart, excuse me. Is
8 there a date on that?"
9 Q. Hold on one second. I'm sorry. Well,
10 I can't address you to the transcript because I
11 have the wrong page.
12 So, you don't recall specifically what
13 the nature of the mortgage-backed security
14 portfolio was to be in 1984?
15 A. I was referring -- just trying to move
16 through with you to the last question. I don't
17 recall at this point the specific -- you mentioned
18 something repo, and I simply don't at this point
19 remember the specificity that you were reflecting
20 in your question.
21 Q. Okay. Was it your understanding that
22 the interest rate risk was to be hedged with some
25488
1 instrument?
2 A. In general, that there was to be a
3 balance or -- and/or a hedge, yes.
4 Q. Now, did there come a time when the
5 portfolio was to be increased in size beyond what
6 happened at the end of 1984 and early 1985?
7 A. As I recall -- I'm not sure whether it
8 was that particular portfolio. But as I recall,
9 somewhere in that period to which you were
10 referring earlier about the hiring of Sandy
11 Laurenson, that there was a change in order of
12 magnitude.
13 Q. And was it a threefold increase in
14 magnitude? Do you recall?
15 A. I don't remember -- I don't remember
16 the specifics, but I do remember a change -- an
17 increase.
18 Q. All right. A sizable increase?
19 A. Well, I don't know what the definition
20 is; but I certainly do remember -- it was an
21 increase that, in my memory, wasn't unrelated to
22 the question that I participate in finding what
25489
1 led to Sandy Laurenson.
2 Q. If Sandy Laurenson had testified that
3 she was instructed by Jenard Gross to increase
4 that mortgage-backed security portfolio to
5 $3 billion by May of 1987, would you have any
6 reason to disagree with her?
7 A. I wouldn't have any reason to challenge
8 her testimony, no.
9 Q. Now, who supervised Sandy Laurenson?
10 A. Well, to my -- the conversations I
11 remember most regularly were with Mr. Gross and
12 Mr. Crow. Of hers, that is. Not of mine.
13 Q. Now, you testified that there was an
14 investment committee. Do you recall?
15 A. Today?
16 Q. Do you recall that there was an --
17 A. Yes. I didn't remember when it
18 started; but yes, there was an investment
19 committee.
20 Q. And do you recall whether you were the
21 person that created the investment committee?
22 A. Well, I didn't -- I didn't create it.
25490
1 I certainly remember being involved -- I was
2 involved in getting it started.
3 Q. And do you recall who the members of
4 the investment committee were?
5 A. I don't specifically. Again, as with
6 the strategic planning group, I have a general
7 sense of who was likely to be the members. But
8 I -- if you were to read me the names, I could
9 give you probably a good sense.
10 Q. Was Jenard Gross a member of that
11 committee?
12 A. Well, again, I'm almost certain that he
13 was. You know -- I mean, I just -- it seems to me
14 that he would be one of the people who would be on
15 the investment committee.
16 Q. Were you a member of the committee?
17 A. I originally was a member of it to get
18 it started. And then at some point -- I wouldn't
19 attend regularly each meeting because my function
20 there was very different than the other people's
21 there. And then at some point, I made it --
22 formally made it clear that I was leaving so they
25491
1 would stop saying in the minutes that I wasn't
2 there.
3 Q. Whatever it reflects in the minutes,
4 you have no reason to disagree with them?
5 A. I have no reason to disagree with that.
6 Q. I would like to show you Document 1654,
7 B1626.
8 A. Thank you.
9 Q. Have you had a chance --
10 A. I have.
11 Q. Now, does that refresh your
12 recollection of when you resigned formally from
13 the investment committee?
14 A. Yes. Yes, absolutely.
15 Q. Okay. Now, the -- when was the
16 investment committee created?
17 A. Well, I think I said earlier I just
18 don't remember the specific time.
19 Q. Was it more than a year before
20 May 19th, 1987?
21 A. Again, you -- I suspect you know the
22 date. I don't know the date.
25492
1 Q. If the records show that, would you
2 have any reason to disagree with the fact that you
3 sat on the investment committee for over a year?
4 A. I wouldn't have any reason to disagree
5 with my being a member of the investment committee
6 from whenever the record shows the starting time
7 was to this memo.
8 Q. The memo says that the reason you were
9 given formal membership was "in order to have a
10 critical mass of policy people shaping the initial
11 framework for our activities."
12 Do you see that?
13 A. Yes.
14 Q. What are you referring to there?
15 A. That when the first committee was first
16 established, I believe, by the board, they were
17 concerned -- it was at a time that I was spending
18 more time -- somewhere in that period, I discussed
19 with Mr. Rinaldi about the change of my role and
20 that my responsibility here was to see that the
21 committee was established, that minutes were being
22 taken, that issues were being discussed openly,
25493
1 and that enough people around that table had
2 different policy perspectives to literally, what
3 it says, shape the initial framework for our
4 activities.
5 That having been done, I needed to move
6 on.
7 Q. Now, did the investment committee
8 review mortgage-backed security transactions on an
9 individual basis?
10 A. On an individual basis? I just -- I'm
11 not sure. I mean, the minutes -- I'm just
12 assuming the minutes would have reflected what
13 they did. I don't know if it was on an individual
14 basis. And I wasn't there, as you can see, at
15 every meeting or subsequent to the 19th of May.
16 So, I don't know the specific answer to that
17 question.
18 Q. Was every trade that was made in the
19 mortgage-backed security portfolio reviewed by the
20 investment committee during the period of time you
21 were a member of that committee?
22 A. I'm just not sure. Every trade? I'm
25494
1 just not sure.
2 Q. If Sandy Laurenson testified to that
3 fact, would you have any reason to disagree with
4 her?
5 A. I would have no reason to dispute her
6 sworn testimony.
7 Q. Now, I would like to direct your
8 attention to another topic. And I would you to
9 take a look at Tab 329, which is T4333.
10 Do you have the document before you?
11 A. The one that says "bond man"?
12 Q. Yes. Look at the very last paragraph
13 on that first page.
14 MR. VILLA: Your Honor, may I ask that
15 we give the witness an opportunity to read this
16 document? It wasn't on their pull list; and it's
17 been 14 years or 12 years, whatever it's been. He
18 ought to be given an opportunity to read it, even
19 if he is on the stand.
20 A. (Witness reviews the document.) Okay.
21 Q. Do you see the last paragraph on the
22 first page where it makes a reference to the
25495
1 swaps? It says, "Just like our swaps were not
2 designed properly and didn't give any thought to
3 the possibility of prepayments."
4 Do you see that?
5 A. Yes.
6 Q. Do you know what that refers to?
7 A. No.
8 Q. Do you recall that --
9 A. I should correct one thing. The "no"
10 was to the swaps issue. I have some vague
11 recollection of the issue of prepayments. So, my
12 "no" was to the swap question. Perhaps I answered
13 too quickly.
14 Q. What do you recall about the
15 prepayments?
16 A. Only that at some point in time, there
17 was a discussion about the relationship between
18 interest rates and the rate of prepayment.
19 Q. Now, when I asked you earlier about the
20 question of what the mortgage-backed security
21 portfolio was, as you understood it to be, did
22 you -- you indicated that the purpose was to have
25496
1 some sort of a yield going forward so that it
2 would generate a profit.
3 Do you recall that testimony?
4 A. Yes, sir.
5 Q. That was your understanding of that
6 portfolio?
7 A. That was my general understanding, yes,
8 sir.
9 Q. Now, do you recall there came a point
10 in time after the Salomon Brothers presentation in
11 November of 1984 that that turned out not to be
12 the case?
13 MR. NICKENS: Your Honor, I'm not sure
14 what "not to be the case" means. And "after 1984"
15 takes into a period of about seven years where he
16 was involved. I mean, we need to be a little more
17 specific. We know we have United MBS. We have
18 other portfolios. I'm not sure what he's asking.
19 MR. GUIDO: I'll rephrase the question,
20 Your Honor.
21 Q. (BY MR. GUIDO) Do you recall that there
22 came a time when interest rates declined and it
25497
1 had an impact on the mortgage-backed security
2 risk-controlled arbitrage portfolio at USAT?
3 A. I recall at least one period of time
4 when an interest rate decline caused a greater --
5 at least my memory now is that it caused a greater
6 pace of refinancing or prepayment or both than had
7 been originally assumed in the structure. At
8 least, that's vaguely right now what I remember.
9 That may be, in part, because you have a similar
10 phenomenon. As I look in the newspaper, the same
11 thing is happening today.
12 Q. Do you recall whether it was -- there
13 was an interest rate shift both in time and by
14 intensity of interest rates that caused
15 prepayments to accelerate beyond the point that
16 people at USAT had anticipated?
17 A. I think that was the question I was
18 answering. Maybe I misunderstood the first
19 question.
20 Q. Is your answer "yes"?
21 A. Yes.
22 Q. Do you remember the entity called USAT
25498
1 Mortgage Finance?
2 A. Do I remember it? No.
3 Q. Okay. Do you recall that at the end of
4 1985, that USAT created a subsidiary to purchase
5 additional mortgage-backed securities?
6 A. Well, I have a vague recollection
7 somewhere in that time period that, at least one
8 instance, that a subsidiary was created. And I
9 think -- at least my recollection was one of those
10 subsidiaries was created and then fairly soon
11 after was uncreated.
12 Q. Okay. And do you recall whether or not
13 you participated in any decisions regarding the
14 creation and dissolution of that subsidiary?
15 A. Whether I personally participated?
16 Q. Yeah, as a member of a committee or a
17 member of management.
18 A. I don't remember now where I would have
19 been.
20 Q. If the minutes would reflect that you
21 participated in its creation and discussion of its
22 dissolution, would you have any reason to disagree
25499
1 with those minutes?
2 MR. NICKENS: What minutes are we
3 referring to, Your Honor?
4 MR. GUIDO: The minutes of the
5 executive committee. Excuse me.
6 A. Is this something I've seen? Am I
7 missing something?
8 Q. (BY MR. GUIDO) No. I haven't shown you
9 anything just yet.
10 A. So, I don't know --
11 Q. I'm just asking you whether or not --
12 A. I don't know.
13 Q. I would like you to take a look at a
14 series of documents which are at -- the first
15 document is Tab 1389 at A1218. The second is
16 Tab 1438, which is at A1219. The third is
17 Tab 1390, which is A1220. The fourth is Tab 1310,
18 which is at B697. And the fifth is Tab 585, which
19 is B690.
20 A. Do you want me to look at all of them
21 now or one at a time?
22 Q. We'll go through them one at a time.
25500
1 A. First one is?
2 Q. This is Tab 1389. I think they are in
3 the order that I will be going through them.
4 A. No, they are not. Tell me the first
5 one.
6 Q. Tab 1389.
7 A. Okay.
8 Q. Do you see the discussion of the -- in
9 the second paragraph of the new financing
10 subsidiary regulations?
11 A. Yes.
12 Q. Okay. Does that refresh your
13 recollection that you participated in discussions
14 of the creation of a financing subsidiary of USAT
15 to purchase mortgage-backed securities?
16 A. Yes. That is, that I was there. It
17 doesn't give me much more than that, but yes.
18 Q. Now, take a look at the next document,
19 which is Tab 1438 which is A1219.
20 Does that refresh your recollection
21 that you attended meetings of the --
22 A. Hold on for a minute. (Witness reviews
25501
1 the document.) Okay.
2 Q. Now, I would like to direct your
3 attention in that to Page 2 in the
4 next-to-the-last paragraph.
5 Do you see that?
6 A. Uh-huh. (Witness nods head
7 affirmatively.)
8 Q. It also talks about the new financing
9 subsidiary regulations and possible alternatives.
10 That paragraph which is for the minutes of the
11 executive committee of United Savings Association
12 of Texas is virtually identical to the second
13 paragraph on A1218, which is the minutes of the
14 executive committee of United Financial Group, is
15 it not?
16 A. Looks a lot alike, yes.
17 Q. And did the executive committee of UFG
18 meet jointly with the executive committee of USAT?
19 A. Sometimes. Sometimes.
20 Q. And did it do so at times that the
21 minutes reflect that two separate meetings
22 occurred?
25502
1 A. I don't remember if it was -- one of
2 you yesterday asked me about the membership of the
3 executive committees, and I think you showed that
4 they were virtually the same group. So, I
5 don't -- it wouldn't have surprised me if they
6 were meeting together or in series. And I don't
7 recall -- this is just an occasion where I see
8 there are two separate minutes. I don't know
9 whether that would happen frequently or
10 infrequently.
11 Q. Now I would like to direct your
12 attention to B690, which is at Tab 585.
13 A. (Witness reviews the document.)
14 Q. Have you seen this document before?
15 A. Well, it shows a copy to me. And so, I
16 suspect -- I have no reason to believe that at
17 some point I had not seen it.
18 Q. Have you reviewed this document
19 recently?
20 A. Have I reviewed it recently? No. I
21 don't recall reviewing this document.
22 Q. Have you reviewed any documents that
25503
1 were designated by the OTS as potential exhibits
2 to be used in your testimony by me in this case?
3 MR. VILLA: For the record, I don't
4 know that he knows the source of the documents
5 that we gave him; but they were most of the
6 documents that the OTS had designated. So, he was
7 just shown documents. I'm not sure he could
8 answer that question.
9 Q. (BY MR. GUIDO) You reviewed documents
10 before your testimony?
11 A. It depends on the definition. I flew
12 in the night before this, and I had a brief period
13 once before to take a quick look at some of those
14 documents.
15 Q. Okay. Now, take a look at Page 2 of
16 the document. It talks about USAT Mortgage
17 Finance.
18 Do you see that at the bottom of the
19 page?
20 A. (Witness reviews the document.)
21 Q. Does that refresh your recollection
22 about the creation of the subsidiary by USAT to
25504
1 buy $500 million worth of mortgage-backed
2 securities hedged with swaps?
3 A. Beyond -- in any meaningful way beyond
4 reading this paragraph right now, no.
5 Q. Okay. Let's take a look at
6 Exhibit B697, which is at Tab 1310.
7 A. Two pages?
8 Q. I have one page.
9 A. Okay.
10 Q. Do you see it indicates you as being a
11 recipient of that memorandum?
12 A. Yes, sir.
13 Q. Do you recall reviewing this document
14 before your testimony?
15 A. I'm not -- again, I don't know -- I
16 just don't know. Do you want me to read it?
17 Q. Do you recall ever seeing this
18 document?
19 A. I have no reason to believe I didn't,
20 but I don't remember it.
21 Q. Do you know why USAT Mortgage Finance
22 was dissolved?
25505
1 A. I have a vague recollection if -- as I
2 referred earlier, if this is the one -- and Jim
3 Pledger -- I think Jim Pledger had been the
4 general counsel and then became the Texas Savings
5 and Loan commissioner. If that's the -- if this
6 is the occasion, some expectation about
7 regulations referred to in this Pledger memo
8 turned out not to be the case. That's a very
9 vague -- I'm not sure that I'm even referring to
10 the right situation.
11 So, I probably should answer the
12 question, "No, I'm not certain."
13 Q. Now, I would like to direct your
14 attention to another area; and that is how the
15 mortgage-backed security portfolio was managed
16 by -- by USAT.
17 A. Okay.
18 Q. You testified that your understanding
19 was that the general purpose was -- your
20 understanding of the general purpose of the
21 portfolio is it would be a risk-controlled
22 arbitrage hedged with instruments such as swaps to
25506
1 generate an interest rate spread.
2 Do you recall that testimony?
3 A. I think you just summarized it better
4 than I did. That was basically my understanding.
5 Q. Basically your understanding of what
6 the mortgage-backed security portfolio was?
7 A. Yes.
8 Q. Did the mortgage-backed securities
9 portfolios end up operating that way?
10 MR. NICKENS: Your Honor, he just asked
11 the witness "portfolio"; and now he's asking a
12 question which I can barely hear where I believe
13 he said "portfolios." Now, this witness'
14 recollection of these events from a long time ago
5 universities trying to help when I could, and it
6 was tasty. Yes, there came a time when I began to
7 think more seriously about time to get back.
8 Q. Did this alarm clock go off before USAT
9 closed or was put into receivership on
10 December 30, 1988?
11 A. Oh, that would have started in '82 -- I
12 don't know what the -- the snooze alarm started
13 ringing about '85 or '86.
14 Q. You didn't go back into not-for-profit
15 or educational activities at that time, though,
16 did you, sir?
17 A. No, no. I really couldn't do that.
18 Q. Why not? Why did you stay?
19 A. Well, I think we were talking about
20 this a bit these past couple of days. First of
21 all, I really did believe in the institution. I
22 really did believe that it was going to turn
25623
1 around and that we had the right people to make it
2 turn around and that there were people there who
3 were there because of me. Not exclusively, but I
4 participated in trying to recruit them. I
5 believed in them. They talked to me. I would
6 have had a hard time walking out on them.
7 Q. Now, sir, you were asked, I think,
8 about the employment contract that you and
9 Mr. Gross received, the USAT employment contract
10 that you and Mr. Gross received in mid-1988.
11 Do you remember that?
12 A. Yes, sir.
13 Q. Would you have left if they hadn't
14 offered you that employment contract?
15 A. Left the institution?
16 Q. Yes, sir.
17 A. No.
18 Q. Now, we talked a little bit about that
19 USAT employment contract. To your knowledge, did
20 you receive any money, either salary or bonus,
21 executive bonus plan, or severance money where
22 USAT bore the financial cost?
25624
1 A. USAT?
2 Q. Yes, sir.
3 A. No, not to my knowledge.
4 Q. We talked very briefly -- I think you
5 were questioned briefly about the time period from
6 1987 into 1988.
7 Sir, do you recall during that time
8 period having any discussions with any USAT
9 officers about them leaving the association for
10 other jobs?
11 A. Not about me. Not about my leaving.
12 Q. Now we're shifting to the -- to the
13 Bruce Williams/Jim Wolfes of the world generally.
14 A. Yes.
15 Q. Why don't you tell the Court about
16 those discussions.
17 A. Again, as I said earlier, pretty much
18 part of my job -- several people at that time have
19 referred to me as the house shrink. I don't know
20 if that was good or bad. Certainly one of the
21 compensation consulting firms said I was playing a
22 role that usually companies paid outside
25625
1 consultants to play. I would have been the one
2 that someone worried about their future would have
3 come to. Did they come to say, "If you don't do
4 this, I'm out of here"? No, that's usually not
5 the way it worked. A lot of the key senior people
6 would knock on the door, ask for a cup of coffee,
7 or want to have a drink at the end of the day and
8 get some sense from me as to why stay, to say
9 where were we headed, what were we doing, how did
10 I feel their situation was, how were they doing,
11 did we believe in them, was it worth their
12 staying.
13 It was at a time when we were being
14 told by others that we had a good, strong
15 leadership team. And so, basically, it was just
16 an awful lot in the years that you mentioned, a
17 great deal of hand-holding conversation.
18 Q. In your experience as administrator,
19 sir, if you failed to respond to those kinds of
20 warnings from your staff, what happens?
21 A. Well, you know, you don't -- it's not
22 like you get threatened and you get blackmailed.
25626
1 What happens is you come in one morning and
2 somebody tells you they have great news for you
3 but not necessarily wonderful news for you and for
4 the sake of their family and kids and profession,
5 they have taken another offer. It's not -- what
6 you do is you realize that they are gone.
7 Q. Now, sir, this case and its predecessor
8 have been around for a long time. I would like to
9 ask you as my last question: How has this case
10 affected your life and your career?
11 A. Well, on the career, I've been blessed
12 with two wonderful jobs since MAXXAM and
13 Federated. So, you're not going to get from me
14 that this case has stood in the way of being
15 successful. Could I have done without all the
16 newspapers articles every time I was appointed to
17 a new job about the allegations of ripping off the
18 federal government, could I have done without
19 having to extract my wife with security, campus
20 security from people holding S&L criminal signs,
21 yeah. Would life have been somewhat better
22 without that harassment? I think that's fair to
25627
1 say.
2 MR. VILLA: Thank you, Dr. Munitz. I
3 have no other questions.
4 THE COURT: Do any of the other
5 respondents have questions for the --
6 MR. BLANKENSTEIN: No questions,
7 Your Honor.
8 MR. EISENHART: I have no questions,
9 Your Honor.
10 THE COURT: Does OTS have any redirect?
11
12 (Discussion held off the record.)
13
14 MR. RINALDI: Mr. Munitz, I just
15 have --
16
17 FURTHER EXAMINATION
18
19 Q. (BY MR. RINALDI) I have just a few
20 follow-up questions, sir.
21 After the receivership, when USAT went
22 into receivership, did you immediately leave UFG?
25628
1 A. No. I was -- I think Mr. Berner and I
2 became the two -- really, I guess the only two
3 people trying to see -- just to see if we could
4 handle the transition and the aftermath.
5 Q. But there was really nothing left of
6 UFG because its principal subsidiary, which was
7 USAT, had been taken away, correct?
8 A. That certainly wasn't what I was being
9 told by the regulators and our lawyers. There
10 was -- there were lawsuits filed. There were
11 issues about net worth maintenance. There were
12 regulatory questions. There were accounting
13 questions. There were receivership interpretation
14 questions. There were ongoing relationships with
15 UFGI. My sense was that there was a great deal to
16 do. And I -- as a matter of fact, I remember some
17 conversations with the regulatory representatives
18 where Mr. Berner and/or I would say, "We're going
19 to continue to do this and this is what we're
20 getting paid to do and are you sure you're
21 comfortable?" And repeatedly, the signal back was
22 absolutely, yes.
25629
1 Q. I wasn't asking you was there anything
2 to do. I was asking you whether the entity UFG
3 had lost its principal subsidiary so where it had
4 been a 7-billion-dollar or 6-billion-dollar
5 institution, it now was a relatively tiny
6 corporation with a relatively small amount of
7 assets, was it not?
8 A. It was a very different organization.
9 Q. Okay. Did you remain on there for some
10 period of time?
11 A. I began -- I stayed through the '89
12 year pretty intensely, began then to phase down in
13 the '90 year, and then basically --
14 Q. Now, at that point in time, were you
15 also continuing to be an employee of UFG and --
16 I'm sorry -- of MCO and Federated?
17 A. I was --
18 Q. Did you continue to have a relationship
19 with those two entities?
20 A. Yes, a relationship.
21 Q. How would you characterize that
22 relationship?
25630
1 A. I was a trustee of Federated. I had
2 basically the vice chair of the board
3 responsibility at then MAXXAM, no longer MCO
4 Holdings. MAXXAM.
5 Q. Over time, did your obligations at UFG
6 begin to wind down?
7 A. Yes.
8 Q. As they wound down, did you then become
9 more involved with Federated than MCO again?
10 A. Not all that much. Somewhat with a
11 couple of projects, but it was pretty clear by
12 then that I was moving on.
13 Q. And I think when I spoke to you the
14 other day, you had indicated that one of the
15 principal reasons that you had been hired by MCO
16 was to help out Mr. Hurwitz with at least UFG; and
17 once UFG was winding down, you didn't feel that
18 there was much left for you to do at MCO?
19 A. I don't know whether it was to help out
20 Mr. Hurwitz. It was that by then, the nature of
21 MCO-MAXXAM had changed very dramatically right
22 around the receivership time or before that.
25631
1 MAXXAM had made a very, very large and complicated
2 acquisition in which I was not much involved with:
3 Kaiser Aluminum. I had been spending so much of
4 my time, relatively speaking, at United that
5 basically a space had been created. And there was
6 a -- there came a time when the key operating
7 person at MAXXAM retired, and that was
8 basically -- whether I had been offered that job
9 was basically the signal to me as to whether or
10 not they were interested.
11 As I said to Mr. Villa, by then, I was
12 already beginning to talk to people about if
13 opportunities come up back in the public sector,
14 count on me now. I would like to be considered.
15 And so, Mr. Hurwitz concluded on his side and I
16 concluded on my side that it didn't make sense to
17 suddenly come back in a major way at MAXXAM.
18 Q. And when you went back into the
19 academic side and indicated to people that you
20 were interested in coming back into academia, did
21 the fact that you had served on the boards of UFG
22 and USAT, did that prevent you from -- from
25632
1 seeking new employment?
2 A. Yes. Absolutely, yes.
3 Q. So, you were unable to obtain a
4 position as a result of the fact that USAT had
5 failed?
6 A. Well, I don't know that it was as a
7 result of the fact that USAT had failed. There
8 were several positions in which I was very much
9 interested that I was excluded from.
10 Q. Excluded by whom?
11 A. By the search committee.
12 Q. But the federal -- I mean, the FDIC did
13 not take some direct action to intervene, did
14 they?
15 A. Is filing a lawsuit direct action?
16 Q. I don't know. When did the FDIC file a
17 lawsuit?
18 A. Well, I don't know exactly when it was;
19 but it was during the course of all the early
20 negotiation in the '89 and '90 period when
21 conversations were going back and forth and there
22 was a lot of publicity about savings and loans.
25633
1 The introductory conversation and then finally the
2 lawsuit -- I don't know whether that was pre- or
3 post-California State University. But during that
4 period in the '89-'90 period when I would begin to
5 talk to search committees, I'm not at all saying
6 directly did the FDIC do something; but to your
7 question, did service at a savings and loan and
8 its holding company make a difference, yes.
9 Q. But you were able to become the
10 chancellor of probably the largest educational
11 system in the United States, were you not?
12 A. Oh, yeah, yeah, happily.
13 Q. And now, in the aftermath of all that,
14 while that litigation is still pending, I believe,
15 and, indeed, this litigation is still pending, you
16 were able to obtain probably I believe, from what
17 you say, the highest position at probably the
18 largest eleemosynary institution of the United
19 States for preservation of the arts. Right?
20 A. A wonderful job, yes.
21 Q. After -- at or about the time USAT was
22 going through its -- going through the 1988
25634
1 period, were there other thrifts in Houston that
2 were failing?
3 A. I think so.
4 Q. And as a result of that, were there a
5 number of unemployed thrift executives available
6 in the Houston area?
7 A. Of the caliber that we felt we had at
8 United, I didn't think very many.
9 Q. Were you familiar with the pool of
10 available people in the Houston area?
11 A. Very.
12 Q. And were there a number of people
13 available, sir?
14 A. Were there a number of people available
15 theoretically? Yes.
16 Q. Who had experience running a
17 traditional thrift?
18 A. Not very many of them of the caliber
19 and experience for which we were looking.
20 Q. Sir, I just have one final question.
21 And that is: As a result of your service with
22 MCO, Mr. Villa had made some reference of the fact
25635
1 of how you had flown across country without -- on
2 voluntary missions for people for -- on your own
3 expense.
4 With respect to this proceeding, is
5 there any agreement between you and MCO or MAXXAM,
6 its successor, regarding the expenses associated
7 with this matter?
8 A. My expenses have been covered for this
9 matter.
10 Q. And in the event that any kind of
11 adverse action is taken from a monetary
12 standpoint, what is the nature of the relationship
13 between you and MCO? Is there an indemnification
14 provision that would provide for MCO to indemnify
15 you if there were any monetary allegations or
16 findings?
17 A. I'm not sure of the detailed
18 relationship, but I think I remember -- and by my
19 service now -- that all indemnification is limited
20 by the definition of whatever regulatory entity
21 covers it. So, I don't know. I don't know what
22 my exposure is.
25636
1 Q. Well, when you went on the board of UFG
2 and you went on the board of USAT, isn't it, in
3 fact, true that MAXXAM had a policy where officers
4 and directors of MCO -- had a policy that officers
5 and directors of MCO who served on boards of
6 entities in which they had an interest, that they
7 would indemnify those individuals against
8 potential liability that they might incur as a
9 result of their service on behalf of MCO?
10 A. I just assumed that -- having talked to
11 other boards members, as I said earlier -- that
12 every indemnification policy with which I've ever
13 had any experience on these boards is governed by
14 the jurisdiction in which they serve. As I
15 remember, therefore, they have -- depending upon
16 what the jurisdiction is -- all kinds of
17 limitations and restrictions.
18 Q. In connection with this litigation,
19 you've never discussed this with your counsel as
20 to whether you have a right to seek
21 indemnification back against MCO in the event that
22 some adverse financial conclusion is reached in
25637
1 this or other litigation?
2 MR. VILLA: I'll object.
3 THE COURT: Sustained.
4 Q. (BY MR. RINALDI) Sir, do you have an
5 agreement with MCO regarding indemnification?
6 A. I believe that I have some agreement.
7 Q. It's just that you're not familiar with
8 all of the details of what's included in the
9 agreement. Is that a fair statement?
10 A. Yes. I don't know about the "just";
11 that is, it's a fair statement to say I don't know
12 all the details. I don't know what the "just"
13 refers to.
14 MR. RINALDI: Thank you very much.
15 MR. VILLA: No questions.
16 THE COURT: Thank you, Dr. Munitz. You
17 may step down.
18 MR. GUIDO: Your Honor, I think
19 Mr. Nickens made a request for a conference.
20 THE COURT: Do you want this on the
21 record?
22 MR. NICKENS: No, Your Honor.
25638
1 THE COURT: We'll be off the record.
2
3 (Whereupon, a short break was taken
4 from 3:09 p.m. to 3:11 p.m.)
5
6 THE COURT: Back on the record. We'll
7 be back on the record.
8 MR. GUIDO: Your Honor, we would like
9 to -- our next witness is not available until
10 tomorrow morning. And so, what we would like to
11 suggest to the Court is that we break for the
12 evening now; and we will bring our next witness on
13 tomorrow morning, if that meets with your
14 approval, Your Honor.
15 THE COURT: All right. We'll adjourn
16 until tomorrow at 9:00.
17
18 (Whereupon at 3:11 p.m.
19 the proceedings were recessed.)
20 .
21 .
22 .
25639
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 8th day of October,
17 1998.
18 ____________________________
MARCY CLARK, CSR
19 Certified Shorthand Reporter
In and for the State of Texas
20 Certification No. 4935
Expiration Date: 12-31-99
21 .
22 .
25640
1 STATE OF TEXAS
COUNTY OF HARRIS
2
REPORTER'S CERTIFICATION
3 TO THE TRIAL PROCEEDINGS
4 I, Shauna Foreman, the undersigned
5 Certified Shorthand Reporter in and for the
6 State of Texas, certify that the facts stated
7 in the foregoing pages are true and correct
8 to the best of my ability.
9 I further certify that I am neither
10 attorney nor counsel for, related to nor employed
11 by, any of the parties to the action in which this
12 testimony was taken and, further, I am not a
13 relative or employee of any counsel employed by
14 the parties hereto, or financially interested in
15 the action.
16 SUBSCRIBED AND SWORN TO under my hand
17 and seal of office on this the 8th day of October,
18 1998.
19 _____________________________
SHAUNA FOREMAN, CSR
20 Certified Shorthand Reporter
In and for the State of Texas
21 Certification No. 3786
Expiration Date: 12-31-98
22
Continue To Charles Hurwitz's Testimony, Oct. 13, 1998