Can FDIC Win Maxxam Case On Its Own?
BY ROB BLACKWELL
The American Banker
October 22, 2002, Tuesday

WASHINGTON.  An Office of Thrift Supervision settlement with a key investor in a failed
Texas savings and loan could doom a lawsuit the Federal Deposit Insurance Corp. has filed
against him and could cost the insurance funds millions. In light of the OTS agreement,
announced last week, to settle charges against Maxxam Inc., an FDIC spokesman said Monday
that it was "reviewing" its suit against Charles Hurwitz, the chairman of Maxxam, which
invested in the parent company of United Savings Association of Texas.

"We haven't decided what course of action to take," the spokesman said.

Though the spokesman emphasized that there were key differences between the FDIC's case
and the OTS', sources said that the settlement leaves the FDIC without one of its major
allies in its battle against Mr. Hurwitz. Since the agencies filed separate suits against
him in 1995, the case has engendered a countersuit and a congressional hearing on charges
of a federal conspiracy to steal redwood trees.

Mr. Hurwitz has alleged that the FDIC and the OTS brought claims against him in order to
pressure him to sell valuable forest land in California. Both agencies have denied the
claims. Maxxam is seeking at least $30 million of legal fees from the FDIC.

Judge Lynn N. Hughes, who oversees the case in the U.S. District Court for the Southern
District of Texas, had indicated that he was unlikely to rule on the countersuit until
the OTS case was finished. A spokesman for Maxxam said the company would inform the judge
this week of the settlement.

In the past, Judge Hughes has proven unsympathetic to the FDIC's arguments.  He has
consistently ruled against the agency and once compared its tactics to those of organized
crime.

The FDIC has spent $12.5 million pursuing people behind the failure of United Savings. A
spokesman said that amount included $5.3 million spent on investigative and other costs
before it filed suit its against Mr. Hurwitz, and $2.9 million of reimbursements to the
OTS. The FDIC has paid $4.3 million to outside law firms for help in the case, some of
which was used to assist the OTS.

To date the FDIC has only recovered $18.6 million in the case, mostly from a settlement
with the thrift's parent. The OTS agreed to settle its case for $206,000 -- considerably
less than the $821 million it had originally sought. Neither Mr. Hurwitz nor Maxxam
admitted any wrongdoing, but they agreed not to get involved with any insured depository
institution for three years.

On Monday, OTS officials defended the settlement, which they said was similar to
agreements won from other former executives of the failed thrift. The agency estimates
that the case had cost it $3 million to $4 million, for which they billed the FDIC.

An OTS spokesman said the costs also covered settlements with United Financial Group, the
thrift's parent, for $9.45 million in 1995, and an additional $1 million from four former
executives in 1999. OTS officials said the $821 million figure was an aggregate amount it
was seeking at the beginning of the case.

Last year an administrative law judge, Arthur Shipe, ruled against the OTS on all 12
counts of its case against Maxxam and recommended that the agency throw the case out.
That left the OTS with a no-win choice: ignore the recommendation and face an
almost-certain appeal to federal court by Maxxam, or accept the judge's ruling and lose
one of its most expensive cases against a failed thrift.

The agency's decision to take the middle ground and settle leaves the FDIC to fight on
alone.