Published Nov. 30, 1998
Sacremanto Bee

Suit: Financier stole from pension fund -- Lumber workers say loss was $60

By Patrick Hoge
Bee Staff Writer

A group of Pacific Lumber Co. workers has filed suit in San Francisco
federal court charging that Houston financier Charles Hurwitz stole $60
million from the company's pension fund in 1986.

The lawsuit is the latest twist in a decade-long series of legal battles
surrounding Hurwitz that have involved some of the 1980s' most notorious
junk bond corporate takeover artists, as well as former Hurwitz executive
Barry Munitz, Gov.-elect Gray Davis' transition director.

Eureka lawyer William G. Bertain, who represents the plaintiffs, alleges
that Hurwitz fraudulently bought Pacific Lumber by having felon financiers
Ivan Boesky and Michael Milken, among others, secretly buy stock for him.

Hurwitz was not available for comment. But though they had not seen the
suit, a Hurwitz attorney and officials at Maxxam Group Inc. and its
subsidiary, Pacific Lumber, strongly disputed Bertain's claims.

"You know full well with the scrutiny that Boesky and Milken got that if
there was one scintilla of evidence to support that (allegation), it would
have been litigated," said Houston attorney Richard Keeton, who is
defending Hurwitz in a federal civil case over a failed savings and loan.

The pension fund allegations were first lodged in 1986, but set aside
during a shareholders' lawsuit that Bertain said was settled in favor of
the plaintiffs to the tune of $160 million, of which Maxxam and its
insurers paid $32 million.

The settlement precluded any possibility that Maxxam's takeover of Pacific
Lumber could be undone, said Lowell Sachnoff, a Chicago attorney who worked
with Bertain on the case.

Milken and now-defunct Drexel Burnham Lambert Inc. were charged with
securities violations that included their involvement in the Pacific Lumber
takeover, Bertain said. Both pleaded guilty to charges unrelated to Pacific
Lumber, he said. The remaining charges were dropped.

No criminal charges were ever lodged against Hurwitz or Maxxam relating to
the Pacific Lumber takeover or any other matter.

In fact, California and the federal government are moving to give $480
million to Hurwitz in exchange for 9,500 acres of Pacific Lumber's 200,000
acres of land, including the fabled Headwaters grove and two smaller
groves, which all harbor trees thought to be over 1,000 years old.

The Headwaters deal is supposed to conclude by March 1, when federal
authorization to spend $250 million expires. It may unravel, however,
because Pacific Lumber lost its state logging license Nov. 10 for violating
state forestry laws.

Bertain's federal court filing on behalf of 2,700 current and former
employees is a refined version of claims that have been made since 1988,
three years after Hurwitz took over the company and its $60 million pension
excess fund.

The suit alleges that Hurwitz took money that was to be reserved for
employees if the company were to be acquired in a hostile takeover.
Although Pacific Lumber directors agreed to merge with Maxxam -- a friendly
takeover -- Bertain contends that Hurwitz committed fraud and the board's
consent is therefore void.

In both the pension fund and shareholder cases, Bertain claimed that
Milken, Boesky and Boyd Jeffries, an agent for Boesky, "parked" stock for
Hurwitz. Jeffries later pleaded guilty to doing the same thing for Boesky
in other instances, Bertain said.

"Parking" means that stock is being held by someone other than the company
pursuing the takeover. Any company or person acquiring 5 percent or $15
million of a public company must disclose holdings, which can drive up
stock prices and alert managers to a takeover attempt.

Pacific Lumber also had a charter provision that if any entity bought more
than 5 percent of its stock, then a super-majority of the stockholders, 80
percent, would have to approve any merger.

Bertain contends that had Hurwitz's true holdings -- his own and those
"parked" with cohorts -- been revealed, he would have had to face such a
vote, and likely would have lost. Thus he would have had difficulty getting
financing for the merger, he said.

The House Energy and Commerce Subcommittee on Oversight and Investigations
made similar findings in 1987 to what Bertain alleges. Hurwitz freely
acknowledged to the panel that Jeffries bought and held stock for him, but
he insisted that even so, his holdings didn't exceed 5 percent. The
committee ended its work with an incriminating report.

Bertain said the Securities and Exchange Commission also probed the Hurwitz
dealings, but did not adequately evaluate the stock-parking claims.

"This is real example of botched work by the government," he said.

An SEC spokesman in New York City declined to comment, saying the agency
does not discuss its investigations.

On yet another front, the federal Office of Thrift Supervision is also
pursuing a civil case against Hurwitz and Maxxam to try to collect for the
1988 collapse of a Texas savings and loan that cost taxpayers $1.6 billion
to bail out.

Government lawyers in that case cited the House subcommittee's report about
the takeover of Pacific Lumber to support their charges. Hurwitz is
expected to mount a defense early next year.

Hurwitz testified that Maxxam, which he controls, was not responsible to
support the United Savings Association of Texas because it never owned more
than 25 percent of the thrift's stock.

But government attorneys say that Hurwitz had an option to buy United
Savings stock, which pushed his ownership above the threshold.

Other defendants in that case include Munitz, a former senior Maxxam
executive and the volunteer leader of Davis' transition team. Munitz was
out of the country and not available for comment.

After leaving Maxxam, Munitz became chancellor of California State
University, and he is now the head of the J. Paul Getty Trust in Los

Hurwitz attorney Keeton said government regulators knew all along about
Hurwitz's stock options, yet they did not claim for 12 years that he or
Maxxam were liable for the thrift's losses.

The case was only pursued to pressure Hurwitz into giving up the Headwaters
forest without compensation, Keeton said.

Environmentalists for years argued that the feds should swap 60,000 acres
of Pacific Lumber's redwood forest in exchange for forgiving the Texas
thrift's losses. Regulators, however, said a swap was inappropriate.

Bertain, the employees' lawyer, is not an environmentalist, and in fact
believes Pacific Lumber's old growth trees should have been cut slowly to
feed the company's mills.

Bertain grew up in Pacific Lumber's privately owned village of Scotia, a
tidy company town where his father ran a laundry operation, and he has made
pursuing Hurwitz a mission. Before getting the 1994 settlement, he said he
went more than $1.4 million into debt.

Bertain is also representing residents along the north fork of the Elk
River who claim their property was damaged by logging related landslides,
and residents of Stafford, where a landslide destroyed seven houses in 1997.

"Hurwitz has destroyed the watersheds. They're collapsing on people," he said.

Bertain predicts high-quality old-growth trees will soon run out at the
rate Pacific Lumber is cutting, and that the spindly trees that replace
them will be harvested and milled with automated machines, resulting in
fewer jobs.

It is the same argument that environmentalists have consistently advanced
for more than a decade in an attempt to create solidarity with Pacific
Lumber's employees.

Ever since Hurwitz took over Pacific Lumber, however, employment has been
higher than ever, jumping from 900 people to almost 1,600 people.

And Pacific Lumber President John A. Campbell insists that Maxxam is in
Humboldt County for the long haul.

Campbell says the company recently purchased timberland, and will acquire
more as part of the Headwaters settlement.

In addition, the company is continuing to make capital improvements, such
as the $9 million log processor now being installed at the company's
Carlotta plant.

"I have nothing against Mr. Hurwitz," said Gary Vidas, a Pacific Lumber
trucker. "He pays me a good wage. He puts food on the table for my family."

Some timber fallers and people working in timber dependent industries
quietly worry, however, that Hurwitz has over-cut the forest, that
automation will cost jobs and that the economy will suffer as a result.

But they still don't side with environmentalists.

"It's his land. He should be able to do what he wants with it," said
Charles Hansen, who produces wire rope in Fortuna to haul downed trees.

"This is, after all, America."

Return to Home