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Published Nov. 30, 1998 Sacremanto Bee Suit: Financier stole from pension fund -- Lumber workers say loss was $60 million 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 Angeles. 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."
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