[Congressional Record Volume 147, Number 178 (Thursday, December 20, 2001)]
[Extensions of Remarks]
[Pages E2411-E2521]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     DEBT-FOR-NATURE AGENDA OF BANK REGULATORS AT THE FDIC AND OTS

                                 ______
                                 

                         HON. JOHN T. DOOLITTLE

                             of california

                    in the house of representatives

                      Thursday, December 20, 2001

  Mr. DOOLITTLE. Mr. Speaker, in the 106th Congress, I chaired a Task 
Force formed by then-Chairman Don Young to examine whether bank 
regulators at the FDIC and OTS used their powers to leverage privately 
owned redwood trees, known as the Headwaters Forest in California, from 
an individual.
  The task force, which included Representatives Pombo, Thornberry, 
Brady, and Radanovich, undertook an 8 month review of the debt-for-
redwoods matter. We held one terribly long hearing on the subject on 
December 12, 2000.
  In the 107th Congress, Chairman Hansen continued work on the subject 
and dedicated staff to draft a staff report to summarize the evidence 
of the FDIC and OTS redwoods debt-for-nature scheme and conclusions 
drawn from the oversight work. The report exposes how banking 
regulators took on an unauthorized, political agenda of leveraging 
redwood trees.
  A member of the Task Force, Representative Pombo, inserted the text 
of the staff report into the Record on June 14, 2001. Just as important 
as the report itself, is the collection of evidence and documents, 
appended to the report. Those documents validate the accuracy of 
information presented in the report. Today, for the benefit of my 
colleagues, I have put those appendices into the Record. The Financial 
Services Committee should review this information as they deal with re-
authorizing the FDIC and the OTS. These entities are clearly out of 
control, and I want to summarize why this is so.
  Bank regulators at the FDIC and OTS have very specific statutory 
charges. They are to recover money from the owners of banks and thrifts 
when the institutions fail. This system keeps depositors whole through 
federally-backed insurance funds and collects money from the banks' 
owners if they failed to properly manage the bank. I emphasize, bank 
regulators are to recover money.
  We found boxes of evidence that clearly showed that the bank 
regulators at the FDIC and OTS deviated from their statutory charge and 
actually concocted a scheme, in concert with the Office of the 
Secretary of the Interior, to obtain redwood trees from an owner of the 
failed bank. The scheme was initiated, promoted, and lobbied by radical 
EarthFirst!

[[Page E2412]]

ecoterrorists. It was embraced by FDIC lawyers and facilitated by 
FDIC's outside counsel, and it was sanctioned at the highest levels of 
the agency.

  The cornerstone of the scheme was to bring legal and administrative 
actions that the regulators believed and knew would fail against Mr. 
Charles Hurwitz, a 24-percent owner of a failed bank called United 
Savings of Texas. The bank regulators own written analysis of their 
claims said if the redwoods were not involved, their lawyers would have 
``closed out'' the case. That means they would have dropped the case, 
period.
  Instead, the bank regulators and their lawyers synthesized the 
redwood for bank claims scheme with politicians in Congress and with 
outside environmental groups. They then met, at a critical juncture, 
with the Office of the Secretary of the Department of the Interior 
where the shocking and incredible realization was noted by one 
participant in the meeting: if we drop the suit we ``undercut 
everything.''
  Even before this startling evidence was uncovered by the task force, 
a U.S. District Court judge, the Honorable Lynn Hughes compared the 
tactics of the FDIC and OTS to that of the mafia.
  Since the time when the report was placed in the Record by Mr. Pombo, 
the OTS administrative proceeding has been decided by the OTS 
administrative judge. In a 200 plus page opinion after reviewing 29,000 
pages of transcripts and 2,400 pages of exhibits for over seven years, 
the OTS judge ruled against the agency on every single claim.
  This ruling validates the inescapable conclusion that the bank 
regulators at the OTS and the FDIC still fail to acknowledge: their 
claims totally lack of merit and were brought for the political reason 
of obtaining ``the trees''--the redwoods--at no cost to the government. 
The staff report sets out the evidence supporting this conclusion.
  This is an atrocious abuse of governmental power, and one that my 
colleagues and the agency should understand. For that reason, I have 
placed the evidence we collected--in its raw form--into the Record 
today.
  I am doubly disturbed about what the bank regulators did, because the 
Committee on Resources and the Congress have the legal authority to 
decide what land is acquired and what the conditions of the acquisition 
should be, not banking regulators. Bank regulators clearly brought 
their claims for the environmentalists, for the Department of the 
Interior, and for the White House, not in furtherance of banking laws. 
Their decision was political and the disposition by the OTS judge again 
proves the point. These documents are even further validation.
  When we asked the bank regulators at our hearing if their banking 
claims had anything to do with redwoods, they said, ``No.'' The staff 
report documents just how the bank regulators were deeply involved in 
the redwoods agenda--and how they cooperated to get ``the trees.'' The 
report shows how they switched their recommendation after meeting with 
the Department of the Interior. Right before they were to decide 
whether to pursue the claims, they obviously understood, ``If we drop 
[our] suit, [it] will undercut everything.'' Those are words are from 
the notes of a meeting between the FDIC and the Department of the 
Interior. Those words put the bank regulators squarely inside the 
redwoods agenda.

  The bank regulators were thick into redwoods early in the process. 
They hired outside counsel based on the supposed expertise to handle a 
``unique'' settlement involving the redwoods. Their outside counsel 
even acted as a conduit between FDIC lawyers and the environmental 
groups that lobbied for the redwoods.
  There is so much evidence detailed in the staff report, which is why 
I am grateful that my colleague, Representative Richard Pombo, put the 
text of the report into the Record on Thursday, June 14, 2001. I want 
my colleagues to know that copies of the appendices to the report are 
also public record. The Task Force made them public at the close of its 
hearing on December 12, 2000. By my motion, they were released:

       Mr. Doolittle. . . . We've gone now for 5 hours. We haven't 
     had a lunch break, and we're not going to have time to get 
     into some of the other details. But I think there's enough 
     revealed here that's very troubling, and it needs further 
     examination, and therefore, I make the following motion: I 
     move that all the documents we utilized in today's hearing be 
     included in the hearing record and that all of the documents 
     produced by the Department of the Interior be included as 
     part of today's hearing record; and I furthermore move that 
     any documents not included in the above categories that are 
     necessary to document a staff report or analysis of the 
     situation be released with such staff report. Hearing no 
     objection. . . . So ordered.

  Now that they are in the Record, my colleagues can see them in the 
context of the staff report.

                                    Congress of the United States,


                                 Washington, DC, June 6, 2001.

     Hon. James V. Hansen,
     Chairman, Committee on Resources, House of Representatives.
       Dear Mr. Chairman: Transmitted with this letter is the 
     Staff Report entitled Redwoods Debt-For-Nature Agenda of the 
     Federal Deposit Insurance Corporation and the Office of 
     Thrift Supervision to Acquire the Headwaters Forest that you 
     and Chairman Young requested.
       The report composed of evidence, testimony, documents, 
     records, and other material reviewed and analyzed by staff of 
     the Committee on Resources during the 106th and 107th 
     Congress. It follows the work of the Committee Task Force 
     that reviewed the matter through December 2000.
       The analysis concludes that there was a redwoods debt-for-
     nature scheme pursued by the bank regulators at the FDIC and 
     the OTS beginning in at least February 1994. The scheme used 
     almost meritless banking claims against Mr. Charles Hurwitz 
     (stemming from his minority ownership of a failed savings and 
     loan) as leverage for the federal government to obtain a 
     large grove of redwood trees owned by the Pacific Lumber 
     Company, a separate entity that Mr. Hurwitz owned and 
     controlled.
       It is clear that the scheme evolved as the FDIC grew to 
     understand the importance of its (and the OTS') potential 
     claims as the leverage for the redwoods during an 
     unprecedented meeting it held in early 1994 with a Member of 
     Congress. At that meeting, the investigation of the claims 
     against Mr. Hurwitz and the redwoods debt-for-nature scheme 
     were discussed in detail, a highly inappropriate action that 
     launched the bank regulators into a hot political issue.
       Immediately after the meeting, the goal of obtaining the 
     redwoods was shared by the FDIC with the OTS, and the OTS was 
     then hired by the FDIC to pursue a parallel administrative 
     action against Mr. Hurwitz. The coordinated purpose of that 
     strategy was to provide more leverage to get ``the trees,'' 
     according to the notes of the FDIC lawyers.
       The intense lobbying campaign by environmental groups, 
     including Earth First!, directed at the FDIC, its outside 
     counsel, the OTS, the Administration, the Department of the 
     Interior, the White House, and Members of Congress was why 
     ordinary internal operating procedures that would have 
     closed out the case against Mr. Hurwitz were not followed.
       The scheme to obtain redwoods overrode the initial internal 
     conclusion that the claims against Mr. Hurwitz were losers 
     for the bank regulators and should not have been bought under 
     the written policy of the agency. In fact, the FDIC met with 
     the top staff from the Office of the Secretary of the 
     Department of the Interior to discuss the scheme just a few 
     days prior to the stunning reversal of the internal staff 
     recommendation not to sue Mr. Hurwitz. The FDIC notes from 
     the meeting say, ``If we drop suit, [it] will undercut 
     everything.'' Of course ``everything'' was the just-discussed 
     scheme to leverage redwoods from Mr. Hurwitz.
       The FDIC (and its agent, the OTS) were indeed an integral 
     part of the redwoods debt-for-nature scheme. They willingly 
     injected themselves into the issue through actions such as 
     meetings with politicians and debt-for-nature advocates, 
     internal analysis of debt-for-nature urgings by environmental 
     advocates, and meetings with Department of the Interior 
     officials promoting a redwoods debt-for-nature scheme. They 
     did these things well before their claims were authorized to 
     be filed by the FDIC board, and it became clearer and clearer 
     to the bank regulators that there would be no ``debt'' and 
     therefore no redwoods nature swap, if the claims were not 
     brought or at least threatened.
       The evidence of the FDIC's participation in the debt-for-
     nature scheme is overwhelming and contradicts the testimony 
     offered by the witnesses at the December 12, 2000, hearing of 
     the Committee Task Force that reviewed the matter. That 
     testimony was that banking claims or the threat of banking 
     claims against Mr. Hurwitz involving USAT were not brought as 
     leverage in a broader plan to get the groves of redwoods from 
     Mr. Hurwitz. The weight of the documentation does not 
     buttress that conclusion at all; it contradicts it.
       Indeed, these actions of the bank regulators, in particular 
     the FDIC and by extension (then directly) the OTS, are an 
     alarming display of how ``independent'' government agencies 
     are not necessarily independent, have agendas, and do engage 
     in politics when not controlled. What staff of such agencies 
     often seem to forget is that the only authority they have is 
     that which Congress gives to them by law. What staff of these 
     agencies either did not know or forgot is that there is not 
     authority in law for them to pursue the redwoods debt-for-
     nature scheme that they pursued. These agencies seemed to 
     realize this well after the pursuit began and their claims 
     were polluted with the illegitimate redwoods agenda.
       The cost of this improper, illegal engagement--on a loser 
     claim that would have been ``closed out'' if it were the 
     normal situation--is upwards of $40 million to Mr. Hurwitz. 
     If the federal government can conspire and get away with 
     doing this to someone with the capacity and resources to 
     defend himself, then imagine what the federal government can 
     do this to a person who does not have the means or capacity 
     to defend himself or herself.
       The U.S. District Court Judge, The Honorable Lynn Hughes, 
     who was assigned the

[[Page E2413]]

     FDIC case, after learning of just a fraction of what the FDIC 
     and OTS had done to strong-arm Mr. Hurwitz, concluded that 
     the agencies used tools equivalent to the cosa nostra 
     (essentially a mafia tactic). Judge Hughes was absolutely 
     correct, and the documentation in this report provides 
     additional basis that validates Judge Hughes conclusion. No 
     one--whether he or she is a millionaire industrialist or a 
     laborer in a factory--should be subject to the unchecked 
     tools of an out of control ``independent'' agency like the 
     FDIC or the OTS, not in our republic.
       The report makes the following conclusion: ``The Directors 
     of the FDIC and OTS should take corrective action and 
     withdraw the authorization for the FDIC lawsuit and OTS 
     administrative action against Mr. Hurwitz for matters 
     involving USAT. The integrity of the bank regulatory system 
     demands nothing less.''
       I hope that the information in this staff report assists 
     the Committee.
           Sincerely,

                                              Duane R. Gibson,

                                                          Counsel.

                                  ____
                                  

                               Congressional Research Service,

                                                    June 29, 2001.

                               Memorandum

     To: Hon. Don Young.
     From: Morton Rosenberg, Specialist in American Public Law, 
         American Law Division.
     Subject: Propriety of the Establishment of an Investigative 
         Task Force by a Committee Chairman and the Release and 
         Publication in the Congressional Record of a Staff Report 
         and Documents Gathered by the Task Force, and Related 
         Questions.

       You have submitted seven questions that inquire as to the 
     legal propriety or basis for the establishment by the House 
     Resources Committee of a task force and certain actions taken 
     by that task force and its members. Our response is based on 
     the following facts and circumstances which you have 
     provided, which may be briefly summarized.
       On August 15, 2000, as Chairman of the House Committee on 
     Resources and acting through the authority vested in you by 
     Rule 7 of the Committee's rules, you established the Task 
     Force on the Headwaters Forest and Related Issues, which had 
     a termination date of no later than December 31, 2000. The 
     purpose of the Task Force was to review and study actions by 
     the Federal Deposit Insurance Corporation (FDIC) and the 
     Office of Thrift Supervision (OTS) which were alleged to have 
     been undertaken by those agencies to improperly exert 
     pressure on private parties so that the federal government 
     could obtain parcels of land in northern California 
     containing groves of redwood trees adjacent to the Headwaters 
     Forest. Those parcels belonged to the Pacific Lumber Company 
     which was owned by Mr. Charles Hurwitz. Mr. Hurwitz was a 
     minority owner of a failed Texas savings and loan bank 
     against whom a civil suit (by the FDIC) and an administrative 
     action (by the OTS) were brought alleging professional 
     liability bonding claims. The legal actions were said to have 
     been brought as leverage to persuade Mr. Hurwitz to swap the 
     redwood parcels for a settlement of these proceedings.
       Following a period of preliminary investigation, which 
     included requests for production of documents by FDIC, OTS, 
     and the Department of Interior and private parties, and the 
     issuance of subpoenas for withheld documents, the Task Force 
     held a hearing on December 12, 2000. At the conclusion of the 
     hearing the chairman of the Task Force, Mr. Doolittle, made 
     the following motion, which was adopted by unanimous consent:
       I move that all the documents we utilized in today's 
     hearing be included in the hearing record and that all of the 
     documents produced by the Department of the Interior be 
     included as part of today's hearing record; and I 
     furthermore move that any documents not included in the 
     above categories that are necessary to document a staff 
     report or analysis of the situation be released with such 
     staff report.''
       On June 6, 2001, a staff report on the Task Force's inquiry 
     was transmitted to the current chairman of the Resource 
     Committee, Mr. James V. Hansen, and to members of the Task 
     Force. Mr. Richard W. Pombo, a member of the Task Force, 
     requested and received permission of Chairman Hansen to 
     publish the staff report in the Congressional Record, which 
     occurred on June 14, 2001. See 147 Cong. Rec. E 1123-E1136.
       We will respond to your questions in the order submitted. 
     Where questions appeared to be closely related, they are 
     answered together.
       1. Was the creation of a task force a valid exercise of 
     Committee Rule 7 authority?
       House rules have vested broad powers in committees and 
     their chairs to conduct oversight and investigative 
     proceedings without telling them how they are to do so. House 
     Rule X.2(b)(1) directs that ``Each standing committee . . . 
     shall review and study, on a continuing basis, the 
     application, administration, and effectiveness of those laws, 
     or parts of laws, the subject matter of which is within the 
     jurisdiction of that Committee . . . in order to determine 
     whether such laws and the programs thereunder are being 
     implemented and carried out in accordance with the intent of 
     the Congress and whether such programs should be continued, 
     curtailed, or eliminated''. House Rule XI.1(b) provides that 
     ``Each committee is authorized at any time to conduct such 
     investigations and studies as it may consider necessary and 
     appropriate in the exercise of its responsibilities under 
     Rule X''. The various House committees and subcommittees have 
     their own rules, procedures and practices. Different 
     inquiries by different committees may follow their own 
     individual paths. Committees may decide among themselves, by 
     precedent or newly devised procedures, how to conduct any 
     particular inquiry. A committee can even adopt rules 
     requiring committee votes before initiating major inquiries, 
     as the House Un-American Activities Committee (HUAC) did in 
     the 1960's, and the House Permanent Select Committee on 
     Intelligence has done in recent years. If such a rule is 
     adopted, ``it must be strictly observed''. Gojack v. United 
     States, 384 U.S. 702, 708 (1966). Both committees had special 
     reasons for adopting such a rule--HUAC's stemming from the 
     controversial nature of its investigations, the Intelligence 
     Committee because of the sensitivity of its inquiries--but 
     the vast majority of committees have not perceived a need to 
     adopt such a rule.
       In the instant situation, Rule 7 of the Resources 
     Committee's rules authorizes the Chairman, after consultation 
     with the Ranking Minority Member, ``to appoint Task Forces, 
     or special or select Subcommittees, to carry out the duties 
     and functions of the Committee.'' The Chairman's August 15, 
     2000 charter of the Task Force vested it with authority ``to 
     carry out the oversight and investigative duties and 
     functions of the Committee'' regarding the Headwaters Forest 
     matter initiated by the Chairman's letter of June 16, 2000. 
     The Task Force's duration was limited to less than six months 
     so that assignment to the Task Force would not count against 
     the limitation on Subcommittee service under House Rule 
     X.5(b)(2)(c). This section of the House Rules also recognizes 
     and contemplates the creation by standing committees of task 
     forces by its definition of ``subcommittee'' to include ``a 
     panel . . ., task force, special subcommittee, or other 
     subunit of a standing committee. . .''
       But even without such a rule, the ordinary procedures by 
     which chairmen commerce inquiries--through inquiry letters, 
     scheduling of hearings, or staff studies and interviews--are 
     proper without committee votes in advance or minority party 
     participation in their formulation or conduct. In furtherance 
     of the responsibility to engage in continuous oversight under 
     Rule X.2(b)(1), it has been traditionally proper for the 
     chairman of committees and subcommittees to initiate 
     preliminary reviews and studies, i.e., inquiries which in a 
     general sense may be termed ``preliminary investigations'' to 
     be undertaken by the committee and subject to the ultimate 
     control and direction of the committee. It is seen as 
     essential, for example, that a chairman's preliminary inquiry 
     be able to minimize the possibility of the destruction of 
     documents pending their formal incorporation as committee 
     files. In this regard, the courts have held that the legal 
     obligation to surrender documents requested by the chairman 
     of a congressional committee arises at the time of the 
     official request, and have agreed in construing 18 U.S.C. 
     1505, a statute proscribing the obstruction of congressional 
     proceedings, that the statute is broad enough to cover 
     obstructive acts in anticipation of a subpoena. See, e.g., 
     United States v. Mitchell, 877 F.2d 297, 300-01 (9th Cir. 
     1979); United States v. Tallant, 407 F. Supp. 878, 888 (D.N.D 
     Ga. 1975).
       The Mitchell ruling is particularly pertinent to the 
     question under consideration here. In that case the appeals 
     court upheld a conviction for obstructing an investigation by 
     the House Committee on Small Business. The court said of the 
     obstruction statute that ``[t]o give section 1505 the 
     protective force it was intended, corrupt endeavors to 
     influence congressional investigations must be proscribed 
     even when they occur prior to formal committee 
     authorization.'' 877 F.2d at 301 (emphasis supplied). The 
     court explained the factual background as follows:
       Applying these principles to the case at hand, all of the 
     circumstances surrounding this investigation point to the 
     conclusion the appellants' corrupt endeavor was directed 
     towards a legitimate House investigation. The investigation 
     was instigated by the chair of a House Committee that 
     unquestionably has jurisdiction over the subject matter of 
     the inquiry. The letter from Congressman Mitchell to the SHA 
     expressly said that ``[t]his Committee is presently 
     conducting an investigation'' and referred to the Small 
     Business Act for its authority to do so. Furthermore, the 
     investigation was handled by the chief investigator of the 
     Small Business Committee on a continuing basis for several 
     months. * * * [T]his was a congressional investigation. 
     Accordingly, we hold that the investigation instigated by 
     Congressman Mitchell was an investigation by the Small 
     Business Committee of the House that was protected by 
     Sec. 1505]''. Id. (emphasis supplied).
       The appeals court quite clearly was approving the notion 
     that a chairman can initiate a proper committee investigation 
     and identifying two classic indicia of a chairman-initiated 
     investigation: the writing of a letter and the handling of 
     the investigation by a committee staffer (the ``chief 
     investigator of the Small Business Committee''). See also, 
     United States v. North, 708 F. Supp. 372, 374 notes 3 and 4 
     (D.D.C. 1988). United States v. North, 708 F. Supp. 380, 
     381-82 (D.D.C. 1988).
       In sum, the Chairman's creation of the Task Force is well 
     founded in Committee and House rules and congressional 
     practice.

[[Page E2414]]

       2. Can a Committee on Resources task force generally have 
     the powers and duties of a subcommittee?
       3. Did the task force have the power and authority under 
     its charter and the applicable rules to discharge the duties 
     and functions of the committee--such as holding hearings, 
     receiving testimony, compiling staff reports and analyses, 
     and releasing records and documents (into hearing records and 
     publicly to document staff reports)?
       A congressional committee is a creation of its parent House 
     and only has the power to inquire into matters within the 
     scope of the authority that has been delegated to it by that 
     body. Thus, the enabling rule or resolution which gives the 
     committee life is the charter which defines the grant and 
     limitations of the committee's power. In construing the scope 
     of a committee's authorizing charter, courts will look to the 
     words of the rule or resolution itself, and then, if 
     necessary to the usual sources of legislative history such as 
     floor debate, legislative reports, past committee practice 
     and interpretations. Jurisdictional authority for a 
     ``special'' investigation may be given to a standing 
     committee, a joint committee of both houses, or a special 
     subcommittee of a standing committee, among other vehicles.
       As indicated in the above discussion, House Rules X and X1 
     clearly vest oversight authority, including the holding of 
     hearings and the issuance of subpoenas, in its standing 
     committees and their subcommittees, and the creation by 
     standing committees of subunits, such as task forces, that 
     would carry out particularized oversight tasks. The 
     Headwaters Forest Task Force was formally established 
     pursuant to Committee Rule 7 and the Task Force's authority 
     was particularly defined in its charter of August 15, 2000: 
     ``[T]o carry out the oversight and investigative duties and 
     function of the Committee regarding the oversight review 
     specified in the June 16, 2000 letter (attached hereto)'' and 
     to ``hold hearings on matters within its jurisdiction'' which 
     are expressly delineated in the charter. Such hearings are 
     made ``[s]subject to the Rules of the House of 
     Representatives and the Rules of the Committee on Resources'' 
     and had to be approved by the chairman prior to their 
     announcement.
       In light of this, it is likely that viewing court would 
     find that the Task Force was properly constituted and could 
     validly exercise all the powers of a subcommittee including 
     holding hearings, receiving testimony and documents and 
     making such documents part of the hearing record, directing 
     the preparation of staff reports and analyses, and 
     authorizing the release of such staff reports together with 
     supporting documentary evidence gathered by the Task Force.
       4. Regarding the unanimous consent request by Chairman 
     Doolittle on December 12, 2000, is it, coupled with the 
     permission of Chairman Hansen, valid authority to release of 
     the report?
       5. Does the unanimous consent request, coupled with the 
     release of the report into the Congressional Record also 
     cover the release of the records contained in the appendices 
     to the report? Generally, is a vote of the Full committee 
     required in order to release such subpoenaed documents and 
     records? Was it in this situation?
       Task Force Chairman Doolittle's unanimous consent request 
     adopted at the conclusion of the December 12, 2000 hearing 
     had the effect of making two categories of documents--
     documents utilized during the hearing and those produced by 
     the Department of Interior--part of the record of the 
     hearing. It also authorized the use of documents received by 
     the Task Force which are not within those two categories to 
     be utilized in the preparation of a staff report where 
     necessary to buttress the analysis and the release of those 
     documents upon the release of the staff report.
       Public release of documents gathered in the course of a 
     legitimate committee investigation, including those 
     introduced at a hearing, is well supported by the House 
     rules, committee practice and relevant judicial precedent. 
     Under House Rule XI, 2, ``all committee hearings, records, 
     data, charts, and files . . . shall be the property of the 
     House and all Members of the House shall have access 
     thereto.'' There is no restriction on the use of evidentiary 
     material, gathered by a committee and presented in a hearing, 
     unless that ``evidence'' is taken in executive session. In 
     those circumstances the evidence may not be ``used in public 
     sessions without the consent of the committee.'' Rule XI, 
     2(k)(7). We are advised that the subject material was not 
     received in executive session.
       A Committee has a right to utilize the documents it has 
     received in any manner that enables it to perform its 
     legitimate legislative functions. In the absence of a 
     countervailing constitutional privilege or a self-imposed 
     statutory restriction upon its authority, Congress and its 
     committees have virtually plenary power to compel information 
     needed to discharge their legislative function from executive 
     agencies, private persons, and organizations, McGrain V. 
     Daugherty, 272 U.S. 135, 177 (1927); Watkins v. United 
     States, 354 U.S. 178, 187 (1957); Barenblatt v. United 
     States, 360 U.S. 109, 111 (1959); Eastland v. United States 
     Servicemen's Fund, 421 U.S. 491, 504 n. 15 (1975), and with 
     certain constraints, the information so obtained or maybe 
     made public, Doe v. McMillan, 412 U.S. 706, 313 (1973); Doe 
     v. McMillan, 556 F. 2d 713-16 (D.C. Cir. 1977), cert. denied 
     435 U.S. 969 (1978).
       Thus, for example, where a statutory confidentiality or 
     non-disclosure provision barring public disclosure of 
     information is not explicitly applicable to the Congress, the 
     courts have consistently held that agencies and private 
     parties may not deny Congress access to such information on 
     the basis of such provisions. FTC v. Owen-Corning Fiberglass 
     Corp., 626 F2d 966, 970 (D.C. Cir. 1980); Exxon Corp. v. FTC, 
     589 F.2d 582, 589 (D.C. Cir. 1978), cert. denied, 441 U.S. 
     943 (1979); Ashland Oil Corp. v. FTC, 548 F.2d 977, 979 (D.C. 
     Cir. 1976); Moon v. CIA, 514 F. Supp. 836, 849-51 (SDNY) 
     1981). Nor may a court block congressional disclosure of 
     information obtained from an agency or private party, at 
     least when disclosure would serve a valid legislative 
     purpose. Doe v. McMillan, 412 U.S. 306, 312 (1973); FTC v. 
     Owens-Corning Fiberglass, supra, 626 F.2d at 970.
       Since none of the documents in question were received in an 
     executive session of the Task Force, no vote of the Task 
     Force or the full Committee was necessary to release them, 
     and all the documents and records of the Task Force were 
     available for inspection by any member of the House. Chairman 
     Hansen's authorization to Mr. Pombo was sufficient (although 
     probably not necessary) to permit him to insert the entire 
     staff report in the Congressional Record.
       6. Please review the section in the report entitled ``Use 
     of Records and Documents'' and comment on whether it is 
     accurate and whether it is correct with respect to 
     utilization of allegedly privileged documents by a committee 
     in a staff report under the circumstances contained in this 
     memo.
       7. Do litigation privileges apply to constrain release of 
     records in such a staff report by the Task Force or the 
     Committee on Resources in the House? If records are used in a 
     staff report under the circumstances explained in this memo 
     and the use impacts litigation, is there any bar to the 
     utilization or release of records that document a staff 
     report? If documents that are compelled to be produced are 
     produced under a subpoena to a federal entity and such 
     documents are used in hearings or staff reports, is a 
     judicial privilege generally waived by the federal entity?
       The Staff Report indicates that FDIC and OTS have suggested 
     that public release of certain documents may jeopardize the 
     agencies' pending civil and administrative proceedings and 
     would also waive judicial litigation privileges that may be 
     available. Neither contention is likely to be upheld by a 
     reviewing court.
       With respect to effect of pending civil or criminal 
     litigation on the ability of a congressional committee to 
     conduct an oversight investigation of an agency, the Supreme 
     Court has long held that refusals to provide testimony or 
     evidence based on an ongoing or potential litigation would 
     not be recognized. In Sinclair v. United States, 279 U.S. 263 
     (1929), the Court upheld the contempt of Congress conviction 
     of a witness in the face of such a contention, holding that 
     neither the laws directing such lawsuits be instituted, nor 
     the lawsuit themselves ``operated to divest the Senate, or 
     the Committee, of power further to investigate the actual 
     administration of the laws.'' 279 U.S. at 295. The Court 
     further explained: ``It may be conceded that Congress is 
     without authority to compel disclosures for the purpose of 
     aiding the prosecution of pending suits; but the authority of 
     that body, directly or through its committees, to require 
     pertinent disclosures in aid of its own constitutional power 
     is not abridged because the information sought to be 
     elicited may also be of use in such suites.' Id. In other 
     words, those persons having evidence in their possession, 
     including officers and employees of executive agencies, 
     can not lawfully assert that because lawsuits are pending 
     involving the government, ``the authority of the [the 
     congress], directly or though its committees, to require 
     pertinent disclosures'' is somehow ``abridged.'' Id.
       The courts have recognized that disclosures at 
     congressional hearings may have the effect of jeopardizing 
     the successful prosecution of civil and criminal cases, but 
     in no instance has any court suggested that this provides a 
     constitutional or legal limitation on Congress' right to 
     conduct an investigation. See, e.g., Delaney v. United 
     States, 195 F. 2d 107, 114 (1st Cir. 1952). Commenting on 
     Congress' power in this regard, Independent Counsel Lawrence 
     E. Walsh, who saw successful prosecutions judicially 
     overturned because of public testimony at congressional 
     hearings, observed that ``[t]he legislative branch has the 
     power to decide whether it is more important perhaps even to 
     destroy a prosecution rather than to hold back testimony they 
     need. They make that decision. It is not a judicial decision 
     or a legal decision but a political decision of the highest 
     importance.'' See Walsh, ``The Independent Counsel and the 
     Separation of Powers,'' 25 Hous. L. Rev. 1,9 (1998). See also 
     ``Investigative Oversight: An Introduction to the Law, 
     Practice and Procedure of Congressional Inquiry, 4, 23-29, 
     CRS Report No. 95-464A, April 7, 1995 (CRS Report).
       Similarly, precedents of the House of Representatives and 
     the Senate, which are founded on Congress' inherent 
     constitutional prerogative to investigate, establish that 
     acceptance of common law testimonial privileges, such as 
     attorney-client or work product privileges, rests in the 
     sound discretion of a congressional committee regardless of 
     whether a court would uphold the claim in the context of 
     litigation. See, CRS Report a pp. 43-56. Indeed, Resources 
     Committee Rule 4(i) specifically provides that: ``Claims of 
     common-law privilege made by witnesses at hearings, or by 
     interviewees or deponents in

[[Page E2415]]

     investigations or inquiries, are applicable only at the 
     discretion of the Chairman, subject to appeal to the 
     Committee.''
       Next, we turn to the question whether publication of the 
     documents received during the course of your investigation 
     will have the effect of waiving any privileges that might 
     otherwise be asserted in any pending or future litigation. 
     Our review of the applicable case law, and the constitutional 
     principles underlying congressional oversight and 
     investigations, lead us to conclude that a reviewing court is 
     not likely to find that disclosure by your Committee, under 
     the circumstances now obtaining, would effect a waiver of any 
     privileges that might be asserted in a related court 
     proceeding.
       More particularly, once documents are in congressional 
     hands, the courts have held that they must presume that the 
     committees of Congress will exercise their powers responsibly 
     and with due regard for the rights of effected parties. FTC 
     v. Owens-Corning Fiberglass Corp., 626 F. 2d 966, 90 (D.C. 
     Cir. 1980); Exxon Corp. v. FTC, 589F. 2d 582, 589 (D.C. Cir. 
     1978), cert denied, 441 U.S. 943 (1979); Ashland Oil Corp. v. 
     FTC, 458 F. 2d 977, 979 (D.C. Cir. 1976). Nor may a court 
     block congressional disclosure of information obtained from 
     an agency or private party, at least where disclosure would 
     serve a valid legislative purpose. Doe v. McMillan, 412 U.S. 
     306 (1973); FTC v. Owings-Corning Fiberglass Crop., supra, 
     626 F. 2d at 970.
       It is also well established that when the production of 
     privileged communications is judicially compelled, compliance 
     with the order does not waive the applicable privilege in 
     another litigation, as long as it is demonstrated that the 
     compulsion was resisted. See, e.g., U.S. v. De La Jara, 973 
     F. 2d 746, 749-50 (9th Cir. 1992) (``In determining whether 
     the privilege should be deemed waived, the circumstances 
     surrounding the disclosure are to be considered. 
     Transamerica Computer, 573 F. 2d at 650.'') Westinghouse 
     Electric Corp. v. Republic of the Philippines, 951 F. 2d 
     1414, 1427, 1427 n. 14 (3d Cir. 1991) (``We consider 
     Westinghouse's disclosure to the DOJ to be voluntary even 
     those it was prompted by a grand jury subpoena, Although 
     Westinghouse originally moved to quash the subpoena, it 
     later withdrew the motion and produced the documents 
     pursuant to the confidentially agreement. Had Westinghouse 
     continued to object to the subpoena and produced the 
     documents only after being ordered to do so, we could not 
     consider the disclosure to do so to be voluntary'') 
     (emphasis supplied); Jobin v. Bank of Boulder (In re M&L 
     Business Machines Co.), 167 B.R. 631 (D. Colo. 1994) 
     (``Production of documents under a grand jury subpoena 
     does not automatically ciliate the attorney-client 
     privilege, much less in an unrelated civil proceeding 
     brought by a non-governmental entity. This is especially 
     true in a case such as this, where the record demonstrates 
     that the Bank has consistently sought to protect its 
     privilege.''). Some courts have even refused to find 
     waiver when the client's production, although not 
     compelled, is pressured by the court. Transamerica 
     Computer Corp. v. IBM, 576 F. 2d 646, 651 (9th Cir. 1978). 
     Similarly another court found that a client's voluntary 
     production of privileged documents during discovery did 
     not effect a waiver because it was done at the 
     encouragement of the presiding judge. Duplan Corp. v. 
     Deering Milliken, Inc., 979 F. supp. 1146, 1163 (S.D.S.C 
     1974) (finding no waiver ``where voluntary waiver of some 
     communications was made upon the suggestion of the court 
     during the course of the in camera proceedings.'').
       Moreover, at least two federal circuits have held that 
     disclosures to congressional committees do not waiver claims 
     of privilege elsewhere. See, Florida House of Representatives 
     v. Dept. of Commerce, 961 F. 2d 941, 946 (11th Cir. 1992); 
     Murphy v. Department of the Army, 613 F. 2d 1151, 1155 (D.C. 
     Cir. 1979).
       As we understand it, documents about which FDIC and OTS 
     have raised concerns are ones that were withheld and had to 
     be subpoenaed. On the basis of the above-delineated 
     precedents, the agencies could make a plausible arguments 
     that they raised sufficient resistence to demonstrate that 
     the disclosure was involuntary and thus not a waiver or 
     privilege.
       Finally, it may be noted that publication of the staff 
     report and attached documents is ultimately protected by the 
     Speech or Debate Clause of the Constitution, Art I, sec. 6, 
     cl. 1, and that such publication, since it does not contain 
     classified material, is unlikely to be sanctioned under the 
     ethics rules of the House.
       The purpose of the Speech or Debate Clause, which provides 
     that ``for any Speech or Debate in either House, (Members  
     shall not be questioned in any other place,'' is to assure 
     the independence of Congress in the exercise of its 
     legislative functions and to reinforce the separation of 
     powers established in the Constitution. Eastland v. United 
     States Servicemen's Fund, supra, 421 U.S. at 502-03 (1975). 
     The Supreme Court has read the clause broadly to effectuate 
     its purposes. Eastland supra; see also, United States v. 
     Swindall, 971 F.2d 1531, 1534 (11th Cir. 1992). The clause 
     protects ``purely legislative activities'', including those 
     inherent in the legislative process. Chastain v. Sundquist, 
     833 F.2d 311, 314 (D.C. Cir. 1987) (quoting U.S. Brewster, 
     408 U.S. 501, 512), cert. denied, 487 U.S. 1240 (1988). The 
     protection of this clause is not limited to words spoken in 
     debate. ``Committee reports, resolutions, and the act of 
     voting are equally covered, as are things generally done in a 
     session of the House by one of its members in relation to the 
     business before it.'' Powell v. McCormack, 395 U.S. 486, 502 
     (1969). Thus, so long as legislators are ``acting in the 
     sphere of legitimate legislative activity,'' they are 
     ``protected not only from the consequences of litigation's 
     results but also from the burden of defending 
     themselves.'' Tenney v. Brandhove, 341 U.S. 367, 376-377 
     (1951). The clause has been held to encompass such 
     activities integral to the lawmaking process as 
     circulation of information to other Members, Doe v. 
     McMillan, 412 U.S. 306, 311-312 (1973); Gravel v. United 
     States, 408 U.S. 606, 625 (1972), and participation in 
     committee investigative proceedings, and reports. DOE v. 
     McMillan, supra; U.S. Servicemen's Fund v. Eastland, 
     supra; Dombrowski v. Eastland, 387 U.S. 82 (1967); Tenney 
     v. Brandhove, supra.
       But the clause does not protect activities only casually or 
     incidentally related to legislative affairs. Thus newsletters 
     or press releases circulated by a Member to the public are 
     not shielded because they are ``primarily means of informing 
     those outside the legislative forum.'' Hutchinson v. 
     Proxmire, 443 U.S. 111 (1979). The key consideration in such 
     cases is the act presented for examination, not the actor. 
     Activities integral to the legislative process may not be 
     examined, but peripheral activities not closely connected to 
     the business of legislating do not get the protection of the 
     clause. Walker v. Jones, 733 F.2d 927, 929 (D.C. Cir. 1984). 
     Thus, dissemination directly to the press of the documents 
     themselves or of staff reports that contain information that 
     describes or quotes from the documents, may not come under 
     the protection of the Clause. But dissemination of staff 
     reports to Members of the Committee and their staff, or the 
     inclusion of such reports, or the documents themselves, in 
     the record of public sessions of the hearings, or the 
     Congressional Record, are functions that are likely to be 
     held ``integral'' to the legislative process and protected by 
     the Clause. Indeed, since Gravel and the revelation of the 
     classified Pentagon Papers on the floor of the Senate by 
     Senator Gravel, the disclosure of less sensitive proprietary 
     matter in legislative forums such as the floor or in hearings 
     is unlikely to be successfully challenged. A review of ethics 
     proceedings in the House since 1978 conducted by the House 
     Committee on standards of official conduct indicates that 
     there have been only two instances involving matter inserted 
     in the Congressional Record. In one, Rep. Thomas L. Blanton 
     (TX) was censured on October 22, 1921 for publishing a 
     document in the Congressional Record that contained 
     ``indecent and obscene language.'' In 1977 a compliant 
     against Rep. Michael J. Harrington (MA) for leaking 
     classified information in the Record was dismissed upon 
     finding that the information had not been properly 
     classified. See Committee on Standards of official conduct, 
     ``Historical Summary of Conduct Cases in the House of 
     Representatives,'' April 1992.
                                  ____


  United States House of Representatives Committee on Resources Staff 
                                 Report

   Redwoods Debt-for-Nature Agenda Of the Federal Deposit Insurance 
    Corporation And the Office of Thrift Supervision to Acquire the 
                    Headwaters Forest, June 6, 2001

       The records, documents, and analysis in this report are 
     provided for the information of Members of the Committee on 
     Resources pursuant to Rule X 2.(a) and (b) of the Rules of 
     the House of Representatives, so that Members may discharge 
     their legislative and oversight responsibilities under such 
     rules. This report has not been officially adopted by the 
     Committee on Resources and may not therefore reflect the 
     views of its members.


                                Preface

     Documentation References
       Documentation is referenced in parentheticals throughout 
     the text of this report. References to ``Document A'' are 
     references to documents that were incorporated into the 
     hearing record by unanimous consent by the Task Force on 
     Headwaters Forest and Related Matters on December 12, 2000. 
     These documents are contained in the files of the Committee 
     and those that are referred to are reproduced in Appendix 1. 
     Documentation referenced as ``Record 1,'' ``Record 2'' etc. 
     is documentation found in Appendix 2. Much of this 
     documentation was not introduced as part of the hearing 
     record, and it is provided for reference to substantiate key 
     facts referenced in this report. References to ``Document DOI 
     A,'' ``Document DOI B,'' etc. are references to documents 
     that were incorporated into the hearing record by unanimous 
     consent of the Task Force on December 12, 2000. These 
     documents were produced to the Committee from the Department 
     of the Interior. Appendix 4 contains the correspondence 
     between the Committee and the bank regulators.
       All documentation referenced in this report and attached in 
     an appendix is necessary to contextually verify the 
     information and conclusions reached in this report on 
     subjects within and related to the jurisdiction of the 
     Committee on Resources. The records, documents, and analysis 
     in this report are provided for the information of Members 
     pursuant to Rule X 2.(a) and (b) of the Rules of the House of 
     Representatives, so that Members may discharge their 
     responsibilities under such rules.
     Role of the Committee on Resources: The Headwaters Forest 
         Purchase and Management
       Ordinarily, one would think that the Committee on Resources 
     does not regularly interact or have jurisdiction over bank 
     regulators. It is important to understand that

[[Page E2416]]

     the Committee on Resources has jurisdiction over the 
     underlying law that initially authorized the purchase of the 
     Headwaters Forest by the United States and management of the 
     land by the Bureau of Land Management. That law was enacted 
     in November 1997 and is P.L. 105-83, Title V, 111 Stat. 1610. 
     That legislation was incorporated in an appropriations bill 
     that funded the Department of the Interior.
       Several conditions constrained the Headwaters 
     authorization. One of those conditions was that any ``funds 
     appropriated by the Federal Government to acquire lands or 
     interests in lands that enlarge the Headwaters Forest by more 
     than five acres per each acquisition shall be subject to 
     specific authorization enacted subsequent to this Act.'' This 
     clause in the authorizing statute is commonly referred to as 
     the ``no more'' clause, because it prohibits federal money 
     from being used to expand the Headwaters Forest after the 
     initial federal acquisition. This was part of the agreement 
     between the Administration and the Congress when funds were 
     authorized and appropriated for the purchase of the 
     Headwaters Forest. The federal acquisition actually took 
     place on March 1, 1999, the final day of the 
     authorization, at which time all federal activity to 
     acquire additional Headwaters Forest should have been 
     dropped. Thus, the FDIC's lawsuit and the OTS's 
     administrative action should be dropped.
       This statute, including the ``no more'' clause, is part of 
     the Committee's basis to compel bank regulators to provide 
     documents and testimony about subjects related to the 
     Headwaters Forest, debt-for-nature, redwoods, and related 
     subjects. The sheer volume of material possessed by the 
     banking regulators on subjects related to the Headwaters 
     Forest, possible acquisition of Headwaters Forest, and 
     redwoods debt-for-nature schemes provide more than adequate 
     basis for the Committee's jurisdiction over these agencies 
     about these subjects. Additionally, the banking regulators 
     have submitted themselves, properly, to the jurisdiction of 
     the Committee.
     Use of Records and Documents
       The FDIC and the OTS will undoubtedly complain that use of 
     some of the records and documents disclosed in this report 
     will jeopardize their case against Mr. Hurwitz, and that 
     certain litigation privileges or a court seal apply to the 
     documents; however, as stressed above, all documentation in 
     this report and attached in an appendix is necessary to 
     contextually verify the information and conclusions reached 
     in this report. The documentation directly bears on subjects 
     within and related to the jurisdiction of the Committee on 
     Resources.
       The records, documents, and analysis in this report are 
     provided for the information of Members. Informing Members 
     has legal basis in Article I of the Constitution and is 
     implied because Members of Congress need accurate information 
     to legislate. Indeed, the Committee has legislated on the 
     Headwaters Forest. Informing members also has legal basis 
     under rule X 2.(a) and (b) of the Rules of the House of 
     Representatives. Members will be better able to discharge 
     their responsibilities under such rules after reviewing the 
     infomation in this report.
       Some may believe that litigation privileges might prohibit 
     use of the records not already part of the Task Force hearing 
     records. However, litigation privileges do not generally 
     apply to Congress. They are created by the judicial branch of 
     government for use in that forum. Assertions of any 
     litigation privileges by the FDIC or the OTS or Mr. Hurwitz 
     related to documents that are disclosed in this report may 
     still be made in the judicial forum.
       Committee staff has redacted sensitive information (for 
     example information unrelated to redwoods or debt-for-nature 
     and information involving legal strategy) of certain records 
     and documents to preserve the integrity of the judicial and 
     administrative proceedings. It is expected that the FDIC and 
     OTS may erroneously say that disclosure of certain documents 
     and records will undercut their litigation position. While 
     many of the documents and records disclosed may be quite 
     embarrassing to the bank regulators, embarrassment is no 
     basis for keeping the information about the unauthorized 
     redwoods debt for nature scheme secret. Some sunshine will 
     expose the unauthorized redwoods agenda of the bank 
     regulators in this case and sanitize the system in the 
     future.
         
     Background and Summary
       On December 12, 2000, the Task Force on Headwaters Forest 
     and Related Matters held a hearing that exposed an evolving 
     redwoods ``debt-for-nature'' scheme undertaken by bank 
     regulators--the Federal Deposit Insurance Corporation (FDIC) 
     and the Office of Thrift Supervision (OTS). Presented at that 
     hearing was substantial documentation and testimony showing 
     how federal banking regulators, swayed by an intensive 
     environmentalist lobbying campaign, willingly became integral 
     to a ``debt-for-nature'' scheme to obtain redwood trees.
       In short, banking regulators provided the otherwise 
     unavailable leverage for a federal plan to extort privately 
     owned redwood trees. The leverage used was the threat of 
     ``professional liability'' banking claims against Mr. Charles 
     Hurwitz, a minority owner of United Savings Association of 
     Texas (USAT), a failed Texas savings and loan.
       Mr. Hurwitz was a favorite target of certain environmental 
     activists who wished to obtain the large grove of redwood 
     trees in northern California, redwoods that belonged to a 
     company, the Pacific Lumber Company, also owned by Hurwitz. 
     The environmental interests pressured Congress, the 
     Administration, and the banking regulators to bring the 
     banking actions against Mr. Hurwitz and USAT. The idea was 
     that the actions or threat of actions would lever or even 
     force Mr. Hurwitz into transferring redwood trees to the 
     federal government.
       The FDIC suit (Federal Deposit Insurance Corporation, as 
     manager of the FSLIC Resolution Fund v. Charles Hurwitz, 
     Civil Action No. H-95-3956) and the OTS administrative action 
     (In the Matter of United Savings Association of Texas and 
     United Financial Group, No. WA 94-01) against Mr. Hurwitz 
     actually became what the environmentalists and political 
     forces sought: the legal actions were the leverage for 
     redwoods.
       The bank regulators knew that their actions would be the 
     leverage for such a debt-for-nature transaction. Between late 
     1993 and when the actions were initiated, the bank regulators 
     became more and more enmeshed with the environmental groups, 
     the Department of the Interior, and the White House in the 
     redwoods debt-for-nature scheme. In the end, they ignored 
     every prior internal analysis indicating that they would lose 
     the USAT suit, so them teamed up and brought it 
     administratively and in the courts.
       Ultimately, the FDIC suit and their hiring of OTS to bring 
     the separate administrative action forced Mr. Hurwitz to the 
     negotiation table. The bank regulators, in concert with the 
     Department of the Interior and the White House, actually 
     baited Mr. Hurwitz into raising the redwoods issue first, so 
     it would not appear that the bank regulators were seeking 
     redwood trees. Indeed the bank regulators still try to 
     propogate the fiction that Mr. Hurwitz somehow raised the 
     issue first, but they can point to no document written 
     evidence prior to September 6, 1995, when Mr. Hurwitz 
     finally submitted and broached the possibility of swapping 
     redwoods for bank claims.
       After an intense banking regulator effort to get the 
     redwoods that lasted from 1993 through 1998, the federal 
     government and the State of California switched the plan and 
     purchased the redwood land owned by Mr. Hurwitz's company. 
     They did so as authorized by Congress (P.L. 105-83, Title V, 
     111 Stat. 1610).
       After the federal purchase, the residue was: (1) fatally 
     flawed banking claims that lacked merit; (2) bank regulators 
     standing alone having been used politically by the White 
     House and Department of the Interior; (3) a group of 
     environmentalists still screaming ``debt-for-more-nature;'' 
     (4) a federal judge who compared the tactics of the bank 
     regulators to those of hired governments and the ``Cosa 
     Nostra'' (the mafia); and (5) Mr. Hurwitz who was required to 
     spend upwards of $40 million to fight the scheme. In short, 
     the residue was a big mess.
       However, not until the oversight review and December 12, 
     2000, hearing of the Task Force did the banking regulators' 
     redwoods ``debt-for-nature'' motivation, which stumped their 
     own negative evaluation of the merits of their case, become 
     more fully understood. It was clear after the hearing that 
     the ``professional liability'' claims would have been 
     administratively closed--never even brought to the FDIC board 
     by FDIC staff for action--had Mr. Hurwitz not owned Pacific 
     Lumber Company and the Headwaters Forest redwood trees.
       Instead, intense political pressure, intense environmental 
     lobbying, and White House pressure to pursue the banking 
     claims as leverage for redwoods outweighed the standard 
     operating procedure to administratively close the USAT case, 
     because there was no USAT case. Two sets of banking 
     regulators--the FDIC and the OTS--became willing instruments 
     and partners in the debt-for-nature scheme as they violated 
     their own test for bringing ``professional liability'' 
     claims. Bank regulators brought the claims against Mr. 
     Hurwitz even though they were more likely than not to fail 
     and were not cost effective.
       The banking regulators' own assessment was that their 
     action would have a 70% likelihood of failure on statute of 
     limitation grounds alone. Even if the claims survive the 
     statute of limitation challenges, their own cerebral 
     assessment put less than a 50% likelihood of success on the 
     merits of their claims. These are not the conclusions of the 
     Task Force, although some Members may well agree with them; 
     they are the conclusions of the bank regulators themselves.
       Moreover, the bank regulators (OTS and FDIC) held numerous 
     meetings about the redwoods debt-for-nature scheme, and at a 
     critical juncture right before they reversed their 
     recommendation to the FDIC board, they met with DOI. The bank 
     regulators walked away from that meeting knowing that [i]f we 
     drop [our] suit, [it] will undercut everything.'' (Record 
     21). This is the meeting that most likely ensured that the 
     leverage for the redwoods desired by the DOI and the Clinton 
     Administration would become real through filing legal and 
     administrative actions.
       These contacts were far outside of normal operating 
     practice for banking regulator and were described by the 
     former Chairman of the FDIC as ``shocking'' and ``highly 
     inappropriate'' (Hearing Transcript, 43-44).
       In addition, the former FDIC Chairman told the Task Force 
     that environmental reference to redwoods does not have ``any 
     relevance whatsoever [on] whether or not you

[[Page E2417]]

     [the FDIC] sue[s] Charles Hurwitz and Maxxam over the failure 
     of United Savings. Whether they own redwood trees or not is 
     absolutely, totally irrelevant.'' (Hearing Transcript, page 
     45). This stinging rebuke from a past FDIC Chairman is a 
     fitting assessment of the actions of an agency caught up in a 
     debt-for-nature agenda that was too big, too political, and 
     too unrelated to its statutorily authorized purpose.
       While there were many factors that nudged the FDIC, and by 
     association the OTS, into the debt-for-nature scheme--its own 
     outside counsel, the law firm of Hopkins & Sutter--provided 
     early and direct links into the environmental advocates who 
     lobbied and advocated for federal acquisition of the 
     Headwaters Forest through a debt-for-nature scheme. In fact, 
     they were selected over as outside counsel other firms 
     because of their environmental connections and ability to 
     handle a redwoods debt-for-nature swap.
       In addition, the predisposition of the legal staff of the 
     FDIC and OTS, the strong desires of Department of the 
     Interior and the White House, the creative lobbying of the 
     Rose Foundation and the radical Earth First! protesters 
     (whose effect was felt and noted in the FDIC Board Meeting 
     discussions during consideration of the USAT matter) all 
     allowed the redwoods debt-for-nature scheme to pollute FDIC 
     and OTS decision-making about the potential claims over 
     USAT's failure. Very little if any documentation provided to 
     the Task Force justified, on a substantive basis, the 
     decision to proceed with the banking actions against Mr. 
     Hurwitz and the other USAT officers and directors.
       Redwoods and ``debt-for-nature'' were not part of banking 
     regulators decision-making or thought process early in the 
     investigation of possible USAT banking claims--from December 
     1988 through about August 1993. The notion was first 
     introduced to the FDIC in November 1993, when the redwoods 
     debt-for-nature proposal sent to them by Earth First! was 
     ``reviewed'' by FDIC lawyers. The first Congressional 
     lobbying of bank regulators promoting redwoods debt-for-
     nature occurred by letter on November 19, 1993. The first 
     known in-person lobbying of bank regulators by a Member of 
     Congress about potential claims of bank regulators being 
     swapped for redwoods occurred in February 1994. The tainting 
     of any possible legitimate banking claims began with the 
     occurrence of that very unusual meeting.
       The documents and records show how the redwoods debt-for-
     nature notion ultimately permeated bank regulators decisions 
     while they developed and brought their claims against Mr. 
     Hurwitz. As the claims were kept active during fourteen 
     tolling agreements between bank regulators and Mr. Hurwitz as 
     the leverage against him for redwoods using those claims was 
     applied. And when the claims were authorized and then filed 
     on August 2, 1995, the claims became more leverage.
       In the end, the evidence is clear that, but for the 
     environmentalists pressure to get redwoods through debt-for-
     nature and, but for Congressional pressure to get leverage on 
     Mr. Hurwitz to submit and give up his redwoods to the 
     government, the banking claims would not even have been 
     brought.
       Interestingly, it was unknown early in that process whether 
     a settlement for potential USAT claims would be viable at all 
     or include redwoods, or whether the government would possibly 
     purchase the redwoods. In any case, the threat of and actual 
     FDIC and OTS claims brought Mr. Hurwitz to the negotiating 
     table. Prior to the claims being filed, the FDIC conspired 
     with the White House and the Department of the Interior about 
     the importance and role of the banking claims to advance the 
     debt-for-nature redwoods agenda. The OTS was present during 
     some of those meetings and was reportedly ``amenable'' to the 
     redwoods debt-for-nature strategy.
       Even after the outright federal acquisition, which was by 
     purchase, the call became ``debt for more nature,'' through a 
     continued use of the bank regulators leverage of suits that 
     were in process already. The claims continued to be used by 
     the federal government to lever Mr. Hurwitz for more nature, 
     at that juncture arguably in violation of the authorizing 
     statute.
       What remained at the end of the day were filed claims that 
     would not have been brought under ordinary circumstances had 
     Mr. Hurwitz not owned redwoods. The bank bureaucracy, with 
     its reason for bringing the claims in the first place having 
     evaporated, continued the fiction: they continued propagating 
     the false notion that redwoods and debt-for-nature had 
     nothing to do with their bringing the USAT claims. Mr. 
     Hurwitz raised it first, they said, even as the FDIC told 
     Department of the Interior that they needed an ``exit 
     strategy'' from the redwoods issue. If redwoods had nothing 
     to do with bringing or pursuing the claims in the first 
     place, then there would be no need for an ``exit'' strategy 
     from the redwoods issue.
       The documentation discovered by Chairman Young and Task 
     Force Chairman Doolittle, which is explained in this report, 
     dispels the notion that Mr. Hurwitz raised the redwoods debt-
     for-nature first. To the contrary, the federal government, 
     bank regulators included, actually baited Mr. Hurwitz into 
     raising it, and they became uncomfortable when he had not 
     raised it nearly a year after the FDIC suit was filed and 
     months after the OTS suit was brought.
       This report synthesizes records and information about the 
     redwoods ``debt-for-nature'' scheme of banking regulators, 
     the information subpoenaed from the FDIC and OTS, and the 
     information collected at the December 12, 2000, hearing of 
     the task force.
     Ordinary Role of the FDIC and OTS; Regulate Banks and Recover 
         Money
       As a starting point, it is helpful to understand the 
     ordinary and authorized role of bank regulators when 
     financial institutions fail. The FDIC is the independent 
     government agency created by Congress in 1933 to maintain 
     stability and public confidence in the nation's banking 
     system by insuring deposits. The FDIC administers two deposit 
     insurance funds, the Bank Insurance Fund for commercial banks 
     and other insured financial institutions and the Savings 
     Association Insurance Fund for thrifts.
       Other than its deposit insurance function, the FDIC is the 
     primary regulator for banks. It supervises, monitors, and 
     audits the activities of federally insured commercial banks 
     and other financial institutions. The FDIC is also 
     responsible for managing and disposing of assets of failed 
     banking and thrift institutions, which is what it did 
     concerning USAT, 24 percent of which was owned by Mr. Charles 
     Hurwitz. In connection with its duties associated with failed 
     banks, the FDIC manages the Federal Savings and Loan 
     Insurance Corporation Resolution Fund, which includes the 
     assets and liabilities of the former FSLIC and Resolution 
     Trust Corporation.
       The OTS is the government agency that performs a similar 
     functions to that of the FDIC for thrifts insured through a 
     different insurance fund. The OTS is the primary regulator 
     for thrifts. The responsibilities of the FDIC and OTS overlap 
     in certain instances. The OTS has explained how the two 
     agencies divide those shared responsibilities: the FDIC 
     ``seek[s] restitution from wrongdoers associated with failed 
     thrifts'' and the OTS ``focus[es] on preventing further 
     problems.'' The USAT case is an exception to these stated 
     policies of federal institutions.
       Nowhere in the statutes authorizing the OTS or the FDIC is 
     there authority to pursue ``professional liability'' claims 
     or other claims for purposes of obtaining redwood trees or 
     ``debt-for-nature'' schemes. The sole purpose of such actions 
     with respect to failed institutions is to recover funds or 
     cash--not trees and not nature.
       The mission of recovering cash was acknowledged by the OTS 
     and FDIC. See, Hearing Transcript, page 63, 64, Ms. Seidman 
     (OTS) answered: ``Our restitution claim is brought for 
     cash.'' Ms. Tanoue (FDIC) answered: ``[T]he FDIC considered 
     all options to settle claims at the encouragement of Mr. 
     Hurwitz and his representative agency, looked at trees, but 
     the preference has always been for cash.'') Indeed, this may 
     be why the FDIC and the OTS have consistently maintained that 
     Mr. Hurwitz was the first to bring the notion of redwood 
     trees to them. It is the only position they can take that 
     is consistent with their underlying authority. This being 
     the case, there should have been few, if any, records 
     concerning redwoods produced to the Committee. To the 
     contrary, the records produced were voluminous--and 
     redwoods were even a topic discussed by the FDIC board 
     when it reviewed whether to bring suit regarding USAT.
     Chronological Facts and Analysis Regarding the FDIC and OTS 
         Pursuit of USAT Claims
       1986: Mr. Hurwitz Buys Pacific Lumber Company and Its 
           Redwood Groves
       Mr. Charles Hurwitz owns Pacific Lumber Company. He 
     acquired it in a hostile takeover on February 26, 1986, using 
     high yield bonds. Pacific Lumber Company owned the Headwaters 
     Forest, a grove of about 6,000 acres of old redwood trees. 
     That property became desired by environmental groups because 
     of the redwood trees.
       After Mr. Hurwitz bought Pacific Lumber Company, he and the 
     company became a target of several environmental groups when 
     the company increased harvest rates on its land. Harvests 
     were still well within sustainable levels authorized under 
     the company's state forest plan, but harvest rates were 
     generally greater than prior Pacific Lumber Company 
     management undertook.
       Environmentalist publicly framed the Hurwitz takeover of 
     Pacific Lumber Company, as that by a ``corporate raider'' who 
     floated ``junk bonds'' to finance a ``hostile takeover'' of 
     the company to simply cut down more old redwood trees. It is 
     unclear whether framing this issue in such a way had more to 
     do with intense fundraising motivations aligned with certain 
     environmental groups described in the recent Sacramento Bee 
     series about financing the environmental movement 
     (www.sacbee.com/news.projects/environment/20010422.html) or 
     more to do with ensuring that trees are not cut.
       At this juncture, Mr. Hurwitz and Pacific Lumber Company 
     were targets of environmentalists, but his opponents had 
     little leverage to stop the redwood logging on the company's 
     land other than the traditional Endangered Species Act or 
     State Forest Practices Act mechanism.
       1988: Hurwitz's 24% Investment in Texas Savings and Loan is 
           Lost
       Mr. Hurwitz also owned 24% of USAT, a failed Texas-based 
     thrift bank. The bank failed on December 30, 1988, just like 
     557 banks and 302 thrifts failed in Texas between 1985 and 
     1995 resulting from the broad-based collapse of the Texas 
     real estate market. As a result of the failure, the banking 
     regulators say they paid out $1.6 billion from the

[[Page E2418]]

     insurance fund to keep the bank solvent and secure another 
     owner. That number has never been substantiated by 
     documentation.
       Because Hurwitz owned less than 25% of the bank, and 
     because he did not execute what is known as a ``net worth 
     maintenance agreement,'' he was not obligated to contribute 
     funds to keep the bank solvent when it failed. Such 
     agreements (or obligations when a person owns 25 percent or 
     more of an institution) are enforced through what is known as 
     a ``professional liability'' action brought by bank 
     regulators.
       In certain cases, the FDIC and OTS are authorized by law to 
     bring to recover money is for the ``professional liability'' 
     against officers, directors, and owners of failed banks. The 
     idea is to recover restitution--money--it took to make failed 
     institutions solvent. This type of claim was brought against 
     Mr. Hurwitz by the bank regulators at OTS after they were 
     hired to do so by the FDIC. The nature of ``professional 
     liability'' claims are explained well in bank regulator's 
     publication as follows: ``Professional Liability [PL] 
     activities are closely related to important matters of 
     corporate governance and public confidence. . . . [They] 
     strengthen the perception and reality that directors, 
     officers, and other professionals at financial institutions 
     are held accountable for wrongful conduct. To this end, the 
     complex collection process for PL claims is conducted in as 
     consistent and fair a manner possible. Potential claims are 
     investigated carefully after every bank and savings and loan 
     failure and are subjected to a multi-layered review by the 
     FDIC's attorneys and investigators before a final decision is 
     rendered on whether to proceed. . . .'' (Managing the Crisis: 
     The FDIC and the RTC Experience 1980-94, published by FDIC, 
     August 1998, page 266)
       Indeed, the bank regulators at the FDIC undertook an 
     investigation of USAT beginning when USAT failed on December 
     31, 1988, to determine what claims they might have against 
     USAT officers, directors, and owners.

              1989-September 1991: Investigation Continues

       The investigation of USAT proceeded, and interim reports 
     were issued by law firms investigating potential USAT claims 
     for the FDIC. Environmentalists initiated various non-banking 
     campaigns to block redwoods timber activities of Pacific 
     Lumber Company on their Headwaters land.

  October 1991-November 1993: Bank Regulators Find No Fraud, No Gross 
                 Negligence, No Pattern of Self-Dealing

       By October 1991, the bank regulators determined that there 
     was no ``intentional fraud, gross negligence, or pattern of 
     self-dealing'' related to officer, director or other 
     professional liability issues related to the failure of USAT 
     (Document B, page 7). They also determined that there was 
     ``no direct evidence of insider trading, stock manipulation, 
     or theft of corporate opportunity by the officers and 
     directors of USAT.'' (Document B, page 7). They also 
     determined that there was ``no direct evidence of insider 
     trading, stock manipulation, or theft of corporate 
     opportunity by the officers and directors of USAT.'' 
     (Document B, page 14). Bank regulators said that the USAT 
     ``directors' motivation was maintenance of the institution in 
     compliance with the capitalization requirements and not self 
     gain or violation of their duty of loyalty.'' (Document B, 
     page 17). There being no wrongful conduct, bank regulators 
     concluded that they had no valid basis to pursue banking 
     claims against the owners of USAT to recover money for its 
     failure.
       In spite of the determination that there was no basis to 
     file a claim regarding USAT, a determination that was unknown 
     to Mr. Hurwitz or the other potential defendants at the time, 
     the banking regulators and Hurwitz made numerous agreements 
     beginning November 22, 1991, expiring July 31, 1995, to toll 
     the statute of limitations. This gave the bank regulators 
     more time to investigate while they withheld filing of a 
     claim. These agreements are fairly routine in complex cases 
     like USAT.
       Beginning in August 1993 while the statute was still 
     tolled, several actions to attempt to acquire the Headwaters 
     Forest were taken in Congress and urged by environmental 
     groups. For example, on August 4, 1993, Rep. Hamburg 
     introduced a bill to purchase 44,000 acres (20 percent) of 
     the Pacific Lumber Company's land and make it into a federal 
     Headwaters Forest. In August 1993, the first contact between 
     the Rose Foundation (the primary environmental proponent of 
     advancing USAT claims against Hurwitz to obtain Pacific 
     Lumber redwoods) and attorneys for the FDIC was made.
       As early as November 30, 1993, FDIC attorneys were aware of 
     the Hamburg Headwaters bill and ``materials from Chuck Fulton 
     re: net worth maintenance obligation'' (Record 3A). The 
     handwritten FDIC memo from Jack Smith to Pat Bak notes that 
     the professional liability section ``is supposed to pursue 
     that claim.'' It reminds her not to ``let it fall through the 
     crack!'' And if the claim is not viable, the banking 
     regulators ``need to have a reliable analysis that will 
     withstand substantial scrutiny.'' (Record 3A).
       Pressure to advance claims against Hurwitz in connection 
     with the redwoods in a debt-for-nature swap came in a variety 
     of forms to the FDIC. It first came from Congress on November 
     19, 1993, in a letter to the FDIC Chairman from Rep. Henry B. 
     Gonzalez, Chairman of the House Committee on Banking (Record 
     2). Numerous written Congressional contacts with the banking 
     regulators, most urging FDIC or OTS to bring claims against 
     Hurwitz occurred in late 1993 when the debt-for-nature scheme 
     was framed and subsequently over the years.
       On the same day, Bob DeHenzel, an FDIC lawyer, got an e 
     mail about a ``strange call'' regarding USAT (Record 1). It 
     was received by Mary Saltzman from a Bob Close, who claimed 
     to be ``working with some environmental groups'' and 
     wished to talk to whoever was investigating the USAT 
     matter. He had detailed knowledge about the $532 million 
     claim related to USAT and Charles Hurwitz. He made the 
     comment that ``people like Hurwitz must be stopped.'' He 
     said he was working with an environmental group called 
     EPIC in Northern California. Paul Springfield, an FDIC 
     investigator, documented a conversation he had with 
     DeHenzel that day (Friday, November 19, 1993) about the 
     call from Bob Close. Mr. Springfield verified that the 
     FDIC lawyer, Mr. DeHenzel, was familiar with a Hurwitz 
     connection to forest property: ``He [DeHenzel] had some 
     knowledge of the nature of the inquiry [by Mr. Close] as 
     well as the attorney Bill Bertain disclosed by Close. 
     DeHenzel stated that this group was involved in fighting a 
     takeover action of some company by Hurwitz involving 
     forest property in the northwestern United States. 
     Apparently they are trying to obtain information to 
     utilize in their efforts.'' (Record 1).
       Then on November 24, 1993, Mr. DeHenzel, faxed a November 
     22, 1993, memo he received on November 22, 1993, from the 
     radical group Earth First! to another FDIC staff member. That 
     memo laid out the ``direct connection between the Savings and 
     Loans, the FDIC and the clearcutting of California's ancient 
     redwoods.'' (Document E). The memo introduced the concept 
     that the USAT ``debt'' (which were only potential claims that 
     FDIC internal analysis had already concluded had no basis) 
     should be traded for Pacific Lumber Company redwoods. An 
     excerpt of the memo lays out the scheme: ``Coincidently, 
     Hurwitz is asking for more than $500 million for the 
     Headwaters Forest redwoods. So if your agency can secure the 
     money for his failed S&L, we the people will have the funds 
     to buy Headwaters Forest. Debt-for-nature. Right here in the 
     U.S. That's where you come in. Go get Hurwitz.'' (Document E)
       The FDIC apparently took Earth First! seriously. Within one 
     month, the FDIC lawyers reported to the acting chairman in a 
     memo that they were ``reviewing a suggestion by `Earth First' 
     that the FDIC trade its claims against Hurwitz for 3000 acres 
     of redwood forests owned by Pacific Lumber, a subsidiary of 
     Maxxam,'' (emphasis supplied) (Document G, December 21, 1993, 
     Memorandum to Andrew Hove, Acting Chairman, From Jack D. 
     Smith, Deputy General Counsel). The handwritten note on the 
     top of the page indicates that the acting chairman Hove was 
     orally briefed about the USAT situation prior to the memo.
       Thus, well before Mr. Hurwitz raised the issue of redwoods 
     and debt-for-nature directly with the FDIC in August or 
     September 1996 with the bank regulators, its lawyers had 
     received written proposals from the radical group Earth 
     First!, and the FDIC was undertaking a review of the 
     proposals. These were proposals making the connection 
     between Hurwitz, the redwoods, and USAT bank claims.
       Then in the close of 1993, a press inquiry report to 
     Chairman Hove on debt-for-nature and the redwoods was 
     received and documented from the Los Angeles Times. The press 
     question was whether FDIC lawyers have considered whether 
     ``we could legally swap a potential claim of $548 million 
     against Charles Hurwitz (stemming from the failure of United 
     Savings Association of Texax) for 44,000 acres of redwood 
     forest owned by a Hurwitz controlled company.'' (Record 3B)
       The redwoods debt-for-nature scheme had been introduced via 
     these various venues during 1993. At the same time FDIC's own 
     analysis had shown absolutely no basis for a banking claim 
     lawsuit involving USAT. However, it was not until early 1994 
     when the FDIC and their agent, the OTS, adopted the redwoods 
     debt-for-nature scheme, and it became inextricably 
     intertwined in its USAT bank claims. Ironically, it was 
     political forces that inticed the bank regulators, who are 
     supposed to act on bank claims without political influence, 
     into wholesale and willing adoption of the redwoods debt-for-
     nature scheme.

   1994: Undisclosed Congressional Meetings Lobbying on the Redwoods 
                        ``Debt-For-Nature'' Plan

       By February 2, 1994, the FDIC attorneys knew the weakness 
     of several of its net worth maintenance claims and it 
     acknowledged that it ``can point to no evidence showing that 
     either UFG or Hurwitz signed a net worth maintenance 
     agreement'' (Record 5, page 6). They acknowledged the 
     weakness in a status memo (Record 5).
       As a result, the FDIC teamed up with the OTS to have OTS 
     attempt to construct an ``administrative'' net worth 
     maintenance claim against Mr. Hurwitz and his company that 
     owned the redwoods. They believed (but offered no proof that) 
     ``the actual operating control of [MCO, FDC, and UFG] was 
     exercised by Charles Hurwitz.'' (Record 5, page 9). In short, 
     FDIC did not have a claim, but the OTS may be able to bring 
     an action in an administrative forum that was much more 
     conductive to bank regulators, so the FDIC would hire the 
     OTS.
       The net worth maintenance claim was important because if it 
     could be established on the facts (i.e., if Mr. Hurwitz owned 
     25 percent of USAT or he was somehow in control

[[Page E2419]]

     of USAT) it could mean he would be liable for that percentage 
     of the USAT loss, which totaled $1.6 billion. In that way the 
     bank regulators could conceivably get into Mr. Hurwitz's 
     assets, including his holding company assets which 
     included the redwoods.
       However, in written correspondence and at the Task Force 
     hearing on December 12, 2000--the FDIC and the OTS denied 
     that the litigation concerning USAT and Mr. Hurwitz had 
     anything to do with redwoods. They also denied that their 
     discovery tactics were improper or for the purpose of 
     ``harassment.'' One exchange at the hearing between Mr. 
     Kroener, the FDIC's General Counsel and Chairman Doolittle, 
     however, typifies the response to the question of whether the 
     bank regulators' litigation had anything to do with redwoods 
     or leveraging redwoods:

       Mr. DOOLITTLE. . . . Did this litigation or discovery 
     tactic [harassment through discovery] have anything to do 
     with redwoods or the desire to create a legal claim to 
     leverage redwoods?
       Mr. KROENER. It did not. . . .
       (Hearing Transcript, page 99)

       While they have publicly denied any linkage, their own 
     written words show the opposite. There was indeed a scheme 
     involving politicizing bank claims against Mr. Hurwitz. Mr. 
     Kroener's answer and the repeated denials of a linkage is 
     purely wrong.
       A superb example of just how wrong Mr. Kroener's answer was 
     is contained in the previously unreleased meeting notes from 
     a February 3, 1994, meeting between FDIC legal and 
     Congressional staff and a U.S. Congressman. The redwoods 
     debt-for-nature linkage was the point of the meeting.
       The high ranking FDIC lawyers working on the redwoods 
     case--Mr. Jack Smith, FDIC Deputy General Counsel, and Mr. 
     John Thomas--and a Rep. Dan Hamburg met on February 3, 1994, 
     to discuss to potential banking claims targeting Mr. Hurwitz. 
     (Record 2A).
       The fact that the meeting occurred at all--especially that 
     it occurred eighteen months prior to the USAT claim being 
     authorized or filed--and the notes from the meeting evince 
     that leverage for redwoods was promoted by FDIC lawyers. The 
     notes also show that the FDIC knew claims targeting Hurwitz 
     were invalid and probably could not be used as leverage 
     (Record 2A). Highlights of the Spittler (Record 2A, page ES 
     0509) meeting notes are as follows:
       Rep. Hamburg had ``an immediate interest in the case,'' 
     probably because he had a bill pending to purchase the 
     Headwaters, and the proposal from environmentalists in his 
     district to swap the Hurwitz banking claim ``debt'' for 
     redwoods had been generally floated. (Record 8A, The Humboldt 
     Beacon, Thursday, August 26, 1993, Earth First! Wants 98,000; 
     4,500 Acres Tops, PL Says.)
       According to Spittler's notes, which are (Record 2A), Rep. 
     Hamburg said he was ``interested enough over potential filing 
     of the complaint to ask what is about to proceed.'' And 
     Hamburg [r]ealized that this possible avenue would be lost.'' 
     The ``avenue'' he was referring to was applying leverage 
     against Mr. Hurwitz for a redwoods debt-for nature swap, and 
     Jack Smith obviously understood this. According to Spittler's 
     notes, Smith replied, it is ``very difficult to do a swap for 
     trees,'' which means Smith knew that the authority of the 
     FDIC to recover restitution in trees was difficult or 
     impossible.
       Smith then told Hamburg about the USAT investigation: ``The 
     investigation has looked at several areas. [One c]laim [is] 
     on the net worth maintenance agreements.'' (Record 2A) The 
     other FDIC attorney present, Mr. John Thomas, acknowledged 
     the fatal flaw of FDIC's claim: ``[There] have been attempts 
     to enforce this, [referring to the net worth maintenance 
     agreement.'' Thomas then said, ``we can't find signed 
     agreement [between] FSLIC [and USAT/Hurwitz]. We never found 
     the agreement.'' (Record 2A) Thomas was absolutely correct--
     because there never was a net worth maintenance agreement 
     signed by Mr. Hurwitz.
       Besides the highly irregular nature of any communication 
     between the FDIC and anyone about a case under investigation 
     this communication is incredible for two reasons. First, it 
     shows the willful manner in which FDIC volunteered to get 
     involved in a political issue and mix potential claims with 
     the redwoods issue. The meeting notes prove that the FDIC 
     lawyers actually secretly briefed a Congressman about the 
     specifics of an ongoing investigation that would become mixed 
     with a political issue.
       Second, the timing of the Congressional strategy session 
     was eighteen months before the FDIC board had not even 
     approved filing a claim against Mr. Hurwitz--and its lawyers 
     were then discussing the specifics their investigation of a 
     potential claim in the context of the scheme that would use 
     the potential claim to obtain redwood trees. The highly 
     irregular nature of this early meeting injected a 
     political dynamic to a case still under investigation. 
     This was obvious to former FDIC Chairman Bill Isaac. He 
     testified to the Task Force that the--``discussions that 
     occurred between FDIC staff and people outside the Agency 
     prior to and during litigation were inappropriate. The 
     fact that those discussions occurred exposes the FDIC and 
     the OTS to the charge that the motivation for their 
     litigation was to pressure Charles Hurwitz and Maxxam to 
     give up their private property, the redwood trees owned by 
     Pacific Lumber. . . . [T]heir repeated contacts with 
     parties with whom they have no business discussing this 
     litigation, congressional and administrative officials and 
     environmental groups, leaves them open to whatever 
     negative conclusions one might care to draw.'' (Hearing 
     Transcript, pages 15-16).
       Mr. Isaac noted the impropriety later again in the hearing. 
     ``--that really would have shocked me as chairman to see the 
     FDIC staff having meetings with people outside the Agency 
     about the redwood trees, and . . . congressional officials 
     about a possible litigation we're thinking about bringing 
     involving redwood trees; you know, somehow tying these 
     redwood trees into it, and getting that mixed up in our 
     decision as to whether to bring a suit over the failure of a 
     bank.'' (Hearing Transcript, page 44-45).
       The content of the meeting between Hamburg, Smith (as 
     opposed to the fact that the meeting even occurred), is even 
     more appalling considering Jack Smith's next comment. 
     According to Spittler's notes, he said ``If we can convince 
     the other side [Hurwitz] that we have claim[s] worth $400 
     million & they want to settle, could be a hook into the 
     holding company.'' Of course, the ``convincing'' about valid 
     claims was the leverage, and the ``hook'' into the holding 
     company was getting company assets, including redwood trees. 
     This was redwoods debt-for-nature. FDIC was part of the 
     redwoods scheme.
       Not only does this show that the idea about debt-for-nature 
     was real to the FDIC lawyers, it shows when they promoted it 
     at a congressional meeting in February 1994, more than 18 
     months before the FDIC lawsuit against Hurwitz was even 
     authorized by the board and 17 months before, according to 
     Mr. Kroener's testimony, Mr. Hurwitz ``indirectly'' raised 
     the debt-for-nature swap with the FDIC through the Department 
     of the Interior. Contrary to Mr. Kroener's representations to 
     the Task Force, the FDIC legal staff was deeply ensconced in 
     the redwoods debt-for-nature scheme well before Mr. 
     Hurwitz raised redwoods with bank regulators.
       The contents of the meeting shows irresponsible ends-driven 
     government, from almost any perspective. Mr. Smith was not 
     even talking about investigating and bringing valid 
     legitimate bank claims. He was only talking about 
     ``convincing'' Mr. Hurwitz that ``we have claims.'' This may 
     even be unethical, because he implied that an invalid, 
     unviable claims (the net worth maintenance claim) may be used 
     as leverage to get redwoods from Mr. Hurwitz.
       The FDIC is supposed to be an ``independent agency,'' that 
     is, it is supposed to insulate itself from political pressure 
     and disputes. FDIC legal staff suddenly injected themselves 
     into a political issue of emerging national prominence 
     (redwood trees and debt-for-nature using banking claims), an 
     issue beyond the normalcy of banking recovery actions. The 
     meeting notes show that the FDIC attorneys engaged to promote 
     the issue of a debt-for-nature swap, and that the design was 
     to merely ``convince the other side'' that the FDIC had 
     claims worth $400 million that the agency knew it did not 
     have. This is a sad, sad statement from an ``independent'' 
     government agency, and it is only the early part of the slide 
     for the FDIC.
       Buttress what the FDIC lawyers said in the February 1994 
     meeting to Rep. Hamburg about trees and claims, against what 
     Mr. Kroener and the other bank regulators told the Task Force 
     in sworn testimony.

       Mr. POMBO. Ms. Seidman and Ms. Tanoue, the FDIC and the OTS 
     have repeatedly said to the public and the Congress, 
     including this morning, that what the agency wanted from USAT 
     claims was cash, is that correct?
       Ms. SEIDMAN. Yes. Our restitution claim is brought for 
     cash. As to any further discussions both relating to the 
     decision to bring the claim that way and subsequent 
     settlement discussions, none of which I took part in, I would 
     defer to Ms. Buck.
       Ms. TANOUE. I will also say that the FDIC considered all 
     options to settle claims, at the encouragement of Mr. Hurwitz 
     and his representative agency, looked at trees, but the 
     preference has always been for cash. . . .

       At a minimum, Ms. Tanoue is misleading. Eighteen months 
     prior to even having a claim to settle or having a claim 
     authorized or having a claim filed, her agency's top lawyers 
     were sitting in a Congressional office talking about 
     ``convincing the other side'' that ``we have claims worth 
     $400 million'' and getting ``hook'' into a holding company 
     that owns redwoods.

       Mr. POMBO. At what point did you start looking at the other 
     options, and you mention trees?
       Ms. TANOUE. Much of this discussion occurred before my 
     tenure. I turn to Mr. Kroener for elaboration on that point.
       Mr. KROENER. . . . We were first offered trees or natural 
     resources assets by representatives of Mr. Hurwitz indirectly 
     in July of 1995.
       There had obviously been a huge public debate going on 
     regarding this forest. We were not part of that but we had 
     lots of communications, other got lots of communications, . . 
     . [and our chairman and general counsel] had responded to 
     inquiries of Congress that were mindful that trees could come 
     into play in our claims, but our claims didn't involve trees; 
     they involved cash. (Hearing Transcript, pages 63-65)

       Obviously their claims involved cash, because by law their 
     mission is to replenish the insurance fund with money. Mr. 
     Kroener was wrong when he said their claims did not involve 
     trees, and trees certainly came into play as evidenced by the 
     February 1994 the e Rep. Hamburg-Smith-Thomas meeting. Indeed 
     trees were the motivating force that led

[[Page E2420]]

     the FDIC to promote net worth maintenance claims to the OTS.
       The clear implications of Ms. Tanoue's answer is that Mr. 
     Hurwitz was the first to bring the redwoods into a possible 
     settlement, but we know that FDIC lawyers were scheming in 
     February 1994 with a Member of Congress to get a banking 
     claim ``hook'' into the redwoods holding company owned by Mr. 
     Hurwitz. Mr. Hurwitz was not the one who first brought the 
     redwoods into banking claim issue--the environmental groups, 
     FDIC lawyers, and certain Members of Congress had already 
     done so by that point.
       Perhaps Mr. Kroener did not read the meeting notes that he 
     provided to the Task Force about the February 1994 meeting 
     between FDIC lawyers and Rep. Hamburg when he told the Task 
     Force that FDIC claims did not involve trees until July 1995 
     when Mr. Hurwitz raised the redwoods to the FDIC indirectly 
     through the Department of the Interior. The claims did 
     involve trees--convincing the ``other side'' that there is a 
     $400 million claim and they may ``want to settle,'' which 
     gets the FDIC into the Hurwitz holding company that has 
     the redwood trees.
       As to Ms. Seidman, she stated a fact--that the OTS claim 
     was for cash, which is technically all that it could be for. 
     What she omits is that the FDIC had imparted the redwoods 
     debt-for-nature agenda directly to the OTS on the heals of 
     the February 3, 1994, meeting between FDIC and Rep. Hamburg--
     and the FDIC did so because its claims were too weak and too 
     small to provide enough leverage for the redwoods (See, 
     Record 33, Record 35 and accompanying discussion infra).
       It took less than 24 hours following the FDIC-Rep. Hamburg 
     meeting for the FDIC Deputy General Counsel, Jack Smith, to 
     write to Carolyn Lieberman (now Carolyn Buck), the top lawyer 
     at OTS. (Record 6). The letter (1) forwarded legal analysis 
     of the net worth maintenance claim against the Hurwitz's 
     holding company that owned the redwoods; (2) admitted that 
     FDIC had no net worth maintenance claim; (3) prodded OTS to 
     review whether it could administratively bring a net worth 
     maintenance claim; and (4) in an incredible admission of 
     purpose and intent, the letter notified OTS about the 
     redwoods debt-for-nature scheme. The last paragraph of the 
     one page letter reads: ``You should be aware that this case 
     has attracted public attention because of the involvement of 
     Charles Hurwitz, and environmental groups have suggested that 
     possible claims against Mr. Hurwitz should be traded for 
     44,000 acres of North West timber land owned by Pacific 
     Lumber, a subsidiary of Maxxam. Chairman Gonzales has 
     inquired about the matter and we have advised him we would 
     make a decision by this May. After you have reviewed these 
     papers, please call me or Pat Bak (736-0664) to discuss the 
     next step and to arrange coordination with our professional 
     liability claims.'' (Record 6)
       Clearly, this action, immediately after the FDIC strategy 
     meeting with Rep. Hamburg constitutes direct engagement of 
     the FDIC to promote the claim that would become the leverage 
     for the redwood debt-for-nature scheme.
       It is worth stressing that the FDIC that wrote this letter 
     on the heals of the Rep. Hamburg meeting is the same FDIC 
     that testified to the Task Force that their litigation did 
     not have anything to do with trees. How could it not when the 
     FDIC told the OTS that it promised Rep. Gonzalez that the 
     agency ``would advise him of its decision'' about an 
     environmental group suggestion ``that possible claims against 
     Mr. Hurwitz should be traded for 44,000 acres of North West 
     timber land owned by Pacific Lumber.''
       This is debt for nature. It was real in February 1994. It 
     ultimately overrode the fact that the FDIC knew its claim was 
     weak and it led almost immediately to the FDIC hiring the OTS 
     to promote the net worth maintenance claim against Mr. 
     Hurwitz.
       This letter was sent three months prior to FDIC hiring OTS 
     to pursue the net worth maintenance claim that FDIC knew it 
     did not have. Importantly, it was sent immediately after the 
     Rep. Hamburg meeting--the meeting that tied Mr. Hurwitz's 
     holding company's redwood trees to the USAT net worth 
     maintenance claim against Mr. Hurwitz. The FDIC prompted 
     and then paid the OTS to pursue this claim by supposedly 
     using its independent statutory authority.
       In effect, the FDIC scheme beginning at least in February 
     1994, polluted the OTS action. What was a ``hook'' into the 
     ``holding company'' that owned the redwoods for FDIC, was a 
     ``hook'' into the holding company for the OTS. In fact, 
     without the FDIC money (which by 1995 totaled $529,452 and by 
     2000 totaled $3,002,825), OTS's five lawyers and six 
     paralegals advancing the claims against Mr. Hurwitz would 
     have been unfunded--and probably not advanced the claim. And 
     without the net worth maintenance claim--by far the largest 
     claim--there would be no hook into Mr. Hurwitz, therefore no 
     hook into his redwoods.
       It is helpful to understand why Mr. Smith told Rep. Hamburg 
     that it is ``very difficult to do a swap for trees.'' It was 
     very difficult for two reasons. First, the claims would not 
     ordinarily be brought because they would fail on the merits, 
     so it would be difficult to exchange a claim that would not 
     have been ordinarily brought. The bank regulators manual 
     explains their policies from 1980 through 1994 for bringing 
     claims as follows: ``No claim is pursued by the FDIC unless 
     if meets both requirements of a two-part test. First, the 
     claim must be sound on its merits, and the receiver must be 
     more than likely to succeed in any litigation necessary to 
     collect on the claim. Second, it must be probable that any 
     necessary litigation will be cost-effective, considering 
     liability insurance coverage and personal assets held by 
     defendants.'' (Managing the Crisis: The FDIC and the RTC 
     Experience 1980-94, published by FDIC, August 1998, page 266)
       Second, the claims would be for restitution, and the FDIC 
     could not accept trees in settlement. The FDIC even admits 
     that they would need ``modest'' legislation to accept trees, 
     which is an admission that their purpose in seeking redwoods 
     is indeed unauthorized.
       However, it was political pressure, such as that applied by 
     environmental groups in 1993 and Rep. Hamburg beginning in 
     1994, that led the willing FDIC (and ultimately its agent, 
     the OTS, after FDIC began paying OTS in May 1994) into 
     ignoring the mission of recovering money on cost effective 
     banking claims.
       Instead the FDIC adopted unauthorized missions of providing 
     leverage through lawsuits that are unsound on the merits and 
     would ``convince'' (the word used by Mr. Smith) Mr. Hurwitz 
     that FDIC had a claim of ``$400 milllion'' so that they could 
     get a ``hook into the holding company'' and settle the claim 
     for redwood trees. This was exercise of leverage pure and 
     simple.
       February 2 through 4, 1994, were important redwoods debt-
     for-nature days for the FDIC's legal team. There was the FDIC 
     memo admitting that it had no net worth maintenance claim. 
     Then there was the meeting with Rep. Hamburg about the 
     redwoods scheme. Then there was an odd, but revealing e mail 
     sent by FDIC's congressional liaison, Eric Spittler, to Jack 
     Smith on February 4, 1994, about a conversation he had with 
     Smith on February 3, 1994, the same day as the Rep. Hamburg 
     meeting. The message was about the selection of an outside 
     law firm to act as counsel on the USAT matter: ``Jack, I 
     thought about over conversation yesterday. My advice from a 
     political perspective is that the ``C'' firm [Cravath] is 
     still politically risky. We would catch less political heat 
     from another firm, perhaps one with some environmental 
     connections. Otherwise, they might not criticize the deal but 
     they might argue that the firm [Cravath] already got $100 
     million and we should spread it around more.'' (emphasis 
     supplied) (Document I)
       Indeed, ``environmental connections'' were a factor in 
     selection of the outside counsel for the USAT matter. A 
     February 14, 1994, memo about ``Retention of Outside 
     Counsel'' for the USAT matter (Record 15) from various FDIC 
     lawyers to Douglas Jones, FDIC's acting General Counsel, 
     trumpets the ability of the firm ultimately selected, Hopkins 
     & Sutter, to handle a redwood debt-for-nature settlement: 
     ``The firm [Hopkins & Sutter] has a proven record handling 
     high profile litigation on behalf of the [FDIC] and, drawing 
     on its extensive representation of the lumber industry, will 
     be able to cover all aspects of any potentially unique debt 
     for redwoods settlement arrangements.'' (Record 15, page 8).
       The FDIC was clearly planning--even in February 1994 with 
     the selection of an outside counsel--for a redwoods debt-for-
     nature swap as part of a settlement! This was before they 
     even knew if their potential claims were really claims, and 
     before the FDIC Board had authorized filing of any claims. 
     From the FDIC's perspective, an outside counsel law firm with 
     ``environmental connections'' that can ``cover all aspects of 
     any potentially unique debt for redwoods settlement'' is the 
     only choice. (Record 15).
       So in February 1994, the FDIC--which denies to this day its 
     litigation against Mr. Hurwitz has any linkage to a redwoods 
     debt-for-nature scheme--selected the outside counsel for the 
     USAT matter because it could handle a debt for redwoods 
     settlement. This firm was an ideal choice for a bank 
     regulator with an agenda to get a ``hook'' into a holding 
     company that has redwood tree assets that might be traded for 
     bank claims--if they can ``convince'' the other side that 
     they have valid claims. Mr. Hurwitz's redwood trees were 
     targeted a year and a half before the bank claims were 
     authorized to be filed and seventeen months before he 
     supposedly raised the issue of redwoods ``first'' with the 
     FDIC.
       The FDIC, its lawyers and acting chairman knew of the 
     linkage between bank claims and redwoods, as did their 
     outside counsel, Hopkins & Sutter, which even facilitated 
     numerous contacts, information exchanges, strategy sessions, 
     and meetings during the remainder of 1994 between the bank 
     regulators and environmentalist proponents of a Hurwitz debt-
     for-nature redwoods swap.
       But Ms. Tanoue and Mr. Kroener testified that redwoods had 
     nothing to do with the litigation, hardly an accurate 
     proposition in light of the fact that the FDIC's outside 
     counsel was selected because of their environmental 
     connections and ability to handle a ``unique debt for 
     redwoods settlement.'' (Record 15)
       Indeed, Hopkins & Sutter's ``environmental connections'' 
     paid off--to the environmentalists advocating a redwoods 
     debt-for-nature scheme. F. Thomas Hecht, the lead partner at 
     Hopkins & Sutter on the USAT matter, in a memo copied to FDIC 
     attorney's summarized the ``intense lobbying effort 
     [beginning in about March 1994] by certain environmental 
     activists led by the Rose Foundation of Oakland, California[, 
     whose] principal concern has been to conserve an area of 
     unprotected old-growth redwoods in

[[Page E2421]]

     northern California known as the Headwaters Forest.'' 
     (Document N, page 1)
       The memo (Document N, page 3-4) details the following 
     contacts:
       ``On June 17, 1994, Thomas Hecht met with Jill Ratner of 
     the Rose Foundation in San Francisco for an initial meeting 
     at which Ms. Ratner outlined her groups' concerns.
       ``On October 4, 1994, Hecht, Jeffrey Williams, Robert 
     DeHenzel and the Rose Foundation and its lawyer participated 
     in a teleconference at which the claims prepared by the Rose 
     Foundation were presented in more detail.
       ``On January 20, 1995, Dehenzel and Hecht met with Julia 
     Levin of the Natural Heritage Foundation (``NHF''), a group 
     closely associated with the Rose Foundation. The NHF is 
     conducting much of the lobbying effort on behalf of the Rose 
     Foundation and other environmental activists on this issue.
       ``In addition to these more formal encounters, Williams, 
     DeHenzel and Hecht have each been contacted repeatedly by the 
     Rose Foundation and its attorneys to explore the theories in 
     more depth and to urge the FDIC to take action. In each of 
     these meetings and in subsequent telephone conversations and 
     correspondence, the Rose Foundation and its allies have urged 
     three general approaches to the problem including: (a) the 
     imposition of a constructive trust over Pacific Lumber's 
     redwoods, (b) the seizure of redwoods using an unjust 
     enrichment theory, and (c) obtaining rights to the forest 
     or, at a minimum, an environmental easement, as part of a 
     negotiated settlement. They have also urged Congressional 
     action, filed a Qui Tam proceeding in the Northern 
     District of California and threatened the FDIC with 
     proceedings under the Endangered Species Act.'' (Document 
     N, page 3-4)
       This is just a sampling of the many instances where the 
     bank regulators own notes and memos show integration between 
     what were still possible bank claims and the redwoods. All of 
     these occurred beginning 18 months before the USAT claims 
     against Mr. Hurwitz were authorized or filed. Record 8 
     contains several examples of outside contacts between bank 
     regulators and environmental groups about different 
     mechanisms to leverage redwoods using potential banking 
     claims.

1995: The Federal Government Is Defined--``High Profile Damages Case'' 
              In Which Redwoods Are ``A Bargaining Chip''

       The relationship between the possible banking claims and 
     the redwoods is not just implied by the number of meetings or 
     the extensive evaluations by bank regulators and their 
     lawyers throughout 1994, it was directly stated in the March 
     1995 memo by F. Thomas Hecht, FDIC's outside counsel: ``As 
     their theories have become subject to criticisms, certain 
     counsel for the Rose Foundation have shifted (at least in 
     part) from argument compelling the seizure of the redwoods to 
     urging the development of an aggressive and high profile 
     damages case in which redwoods become a bargaining chip in 
     negotiating a resolution. This, indeed, may be the best 
     option available to the environmental groups; its greatest 
     strength is that it does not depend on difficult seizure 
     theories. This approach would require that both the FDIC and 
     OTS undertake to make the redwoods part of any settlement 
     package.'' (footnote not in original) (Document N, page 8)
       Thus, the FDIC's outside counsel explained and evaluated 
     the best course of action for the environmental groups (never 
     mind the FDIC or the government). The fact is that a high 
     profile damage claim where redwoods were leveraged from Mr. 
     Hurwitz--the environmentalist's best option--is exactly how 
     the FDIC proceeded, particularly after the DOI and the 
     White House engaged with the bank regulators. They 
     swallowed the redwoods debt-for-nature scheme--hook, line, 
     and sinker (as the old saying goes)--beginning in 1994 and 
     continuing into 1995, even though their own analysis 
     showed that their potential claims would not stand.
       In spite of these facts, the FDIC has consistently insisted 
     since late 1993 that ``there is no direct relationship 
     between USAT and the Headwaters Forest currently owned by 
     Pacific Lumber Company . . . [however], if such a swap became 
     an option, the FDIC would consider it as one alternative . . 
     . '' (Record 28). Indeed, this is exactly what the banking 
     regulators have told the Committee in writing: they have 
     always been open to the idea, but they prefer cash. The 
     documentation outlined above shows that the banking 
     regulators actively pursued a redwoods debt-for-nature agenda 
     using their claims as urged by certain Members of Congress 
     and by environmental groups. However, by this point, the 
     Department of the Interior and the White House had yet to 
     engage. That changed in early of 1995.
       In February 1995, a host of environmentalists proposed an 
     acquisition of the Headwaters redwood trees to President 
     Clinton, and Leon Penetta (Chief of Staff) wrote back to them 
     saying that budget constraints would not permit outright 
     acquisition (Record 16A). He suggested that they push a debt-
     for-nature swap or land exchange instead. That action served 
     to lower expectations for appropriated funds for the 
     redwoods, and focused the proponents on continuing to push 
     the redwoods debt-for-nature scheme.
       By April 3, 1995, FDIC lawyers were openly attempting to 
     leverage Mr. Hurwitz into settling claims that were still yet 
     to be filed for redwood trees. The redwoods debt-for-nature 
     scheme was alive and active at the FDIC as indicated by the 
     words in this e mail to Mr. Jack Smith from Mr. Bob DeHenzel: 
     ``Jack: Just a note regarding our brief discussion on Charles 
     Hurwitz and exploring creative options that may induce a 
     settlement involving the sequoia redwoods in the FDIC/OTS 
     case: . . .'' (Record 9)
       In these words the FDIC's attorneys were indeed leveraging 
     redwoods by sing their banking claims--at least three months 
     before FDIC says that Mr. Hurwitz raised the redwoods-debt-
     for nature idea through his ``representative agency'' 
     (presumably the DOI), attorneys, four months before the FDIC 
     board authorized the suit against Mr. Hurwitz, and about five 
     months before the FDIC maintains Mr. Hurwitz raised the 
     redwoods swap idea directly with the bank regulators.
       Thus, well before the notion of the redwoods debt-for-
     nature deal was introduced to the FDIC by Mr. Hurwitz (as the 
     bank regulators religiously maintain) the bank regulators 
     were indeed targeting Mr. Hurwitz's redwoods and using their 
     potential claims as leverage to ``induce'' a settlement. The 
     repeated statements and the sworn testimony of Ms. Seidman, 
     Ms. Tanoue, and Mr. Kroener to the Task Force (the Mr. 
     Hurwitz introduced the redwoods into settlement 
     discussions) is yet another example that directly 
     contradicts what the FDIC lawyers were doing as evidenced 
     by their own writing.
       The notes of FDIC attorneys about what they were seeking 
     and why the FDIC and the OTS were cooperating also contradict 
     the testimony of the bank regulators when they say that 
     redwoods had nothing to do with the litigation against Mr. 
     Hurwitz. Sometime in mid-1994 (but before July 20, 1994), 
     FDIC wished to continue studying their claim and ``a possible 
     capital maintenance claim by OTS against Maxxam.'' In 
     illuminating candor, the handwritten memo articulates why the 
     FDIC lawyers wanted to hire the OTS and double team Mr. 
     Hurwitz: ``Why? (1) Tactically, combining FDIC & OTS' 
     claims--if they all stand scrutiny--is more likely to produce 
     a large recovery/the trees than is a piecemeal approach.'' 
     (Record 10, bates number JT 000145)
       So, the senior FDIC lawyer, Mr. John Thomas, 
     contemporaneously wrote that their strategy with OTS would be 
     more likely to produce ``the trees.'' But their Chairman, 
     their General Counsel, and the OTS Director repeatedly told 
     the committee that the litigation had nothing to do with 
     trees. Were the FDIC and OTS management and their board 
     members so ill-informed about what their attorneys were 
     seeking to achieve? ``The trees'' is not cash, period.
       The other very alarming notion is how integral OTS is to 
     the strategy to ``produce'' ``the trees,'' according to the 
     FDIC attorneys. The strategy to ``combine'' FDIC's weak 
     claims with possible OTS claims on net worth maintenance 
     further explains the February 4, 1994, letter from FDIC's 
     lawyers to OTS's lawyers (Record 6).
       It transmitted the net worth maintenance claim to the OTS 
     and introduced the notion that the FDIC was considering a 
     redwoods debt-for-nature swap scheme. The FDIC told OTS that 
     they were about to report to Rep. Gonzalez about the 
     potential for the swap. The implication was that viable 
     claims against Mr. Hurwitz (brought directly by the FDIC or 
     indirectly through the OTS) would allow the FDIC to report 
     back to Mr. Gonzalez that they could help get ``the trees'' 
     because a swap would be more viable. Without the OTS, the 
     FDIC would not have enough leverage to produce ``the trees,'' 
     because by its own analysis, the FDIC claims were losers.
       The repeated intra-government lobbying of FDIC and OTS also 
     pushed the bank regulators into the political redwoods debt-
     for-nature acquisition scheme. This intra-government lobbying 
     began indirectly by at least May 19, 1995, and is first 
     evidenced by notes (Record 11) from a phone call by Ms. Jill 
     Ratner, who runs the Rose Foundation to Mr. Robert 
     DeHenzel. (Record 11 is a copy of Mr. DeHenzel's notes 
     from that conversation.)
       The notes (Record 11) indicate that Ms. Ratner told Mr. 
     DeHenzel about the Department of the Interior (DOI) players 
     who are ``very interested in debt-for-nature swap'': Mr. Alan 
     McReynolds, a Special Assistant to the Secretary of the DOI, 
     Mr. Jeff Webb, with DOI congressional relations, Mr. George 
     Frampton, the Assistant Secretary for Fish and Wildlife and 
     Parks at DOI, and Mr. Jay Ziegler, an assistant to Mr. 
     Frampton were all discussed as redwoods debt-for-nature 
     advocates. And Record 11A illustrates that the Rose 
     Foundation had done substantial work regarding various 
     mechanisms to transfer the redwoods to the federal 
     government.
       The notes indicate that Mr. McReynolds had flown over 
     Headwaters during the week of May 8, 1995, with Ms. Ratner a 
     primary advocate of various plans to acquire the Headwaters 
     forest. This was the first indication that DOI was engaging 
     on the redwoods debt-for-nature scheme and probably Mr. 
     McReynolds' first exposure to the concept that bank claims 
     could provide the leverage for the redwoods scheme. There is 
     no mention in the notes that Mr. Hurwitz requested DOI to 
     raise the issue of a redwoods swap or look into it: 
     ``Interior is . . . discussions will continue. Webb & Zeigler 
     will continue doing prelim[inary] work to explore whether 
     debt-for-nature would work.'' (Record 11)
       By the time that the DOI engaged in May 1995, the FDIC 
     lawyers were well aware of

[[Page E2422]]

     the `` `debt-for-nature' transaction that various 
     environmental groups have been advocating to resolve the 
     claims involving Hurwitz and USAT.'' (Record 12) They were 
     also apparently intimidated by the environmentalists as shown 
     by the two page FDIC memo about a redwoods debt-for-nature 
     letter to FDIC referencing the Oklahoma City bombing and a 
     ``call to defuse this situation'' by doing a swap (Record 
     12). The following excerpt of the memo shows detailed 
     knowledge about the debt-for-nature scheme and a perceived 
     threat of violence related to environmentalists who had 
     pushed the FDIC into it: ``As you know, the above-referenced 
     investigation has resulted in attracting the attention of 
     organizations and individuals that have interests in 
     environmental preservation. This has arisen as a result of 
     Charles Hurwitz's acquisition (through affiliates) of Pacific 
     Lumber, a logging company in Humbolt County, California, that 
     owns the last stands of old growth, virgin redwoods. It has 
     been widely reported that the company has been harvesting the 
     virgin redwoods in a desperate attempt to raise cash to 
     pay its and its holding company's Maxxam, Inc.'s 
     substantial debt obligations.
       ``The environmentalist's issues are centered on preserving 
     the old growth redwoods through a mechanism of persuading 
     Hurwitz to settle the government's claims involving losses 
     sustained on the USAT failure by, in part, transferring the 
     redwood stands to the FDIC or other federal agency 
     responsible for managing such forest lands. FDIC has received 
     thousands of letters urging FDIC to pursue such a 
     transaction.''
       ``The environmental movement, like many others, is not 
     homogeneous and contains extreme elements that that have 
     resorted to civil disobedience and even criminal conduct to 
     further their goals. As a result of the recent tragedy in 
     Oklahoma City, everyone appears more sensitive to the 
     possibility that people can and do resort to desperate 
     depraved criminal acts. Accordingly, we take any references 
     to such conduct, even ones that appear innocent, more 
     seriously.'' (Record 12)
       This excerpt shows that FDIC attorneys were (1) probably 
     somewhat intimidated and (2) already well-versed in the debt-
     for-nature scheme when Ms. Ratner told Mr. DeHenzel who the 
     DOI players supporting the redwoods debt-for-nature scheme 
     were. The FDIC was keen to the motivations and methods of 
     those who fed the scheme to them. Perhaps the intimate 
     knowledge by the FDIC of the interests and desires of the 
     environmental community came through the numerous pieces of 
     correspondence and legal memos from the Rose Foundation to 
     the FDIC through Hopkins & Sutter. The material showing the 
     constant pummeling of FDIC by these advocates (and the 
     willing acceptance by the FDIC and its outside law firm with 
     ``environmental connections'') is too voluminous to 
     reproduce. It is contained in the Committee's files.
       With the FDIC primed, the Department of the Interior 
     directly engaged with the FDIC. The first known direct 
     contact was a 5:00 p.m. call on July 17, 1995, from Alan 
     McReynolds to Robert DeHenzel. The notes taken by DeHenzel 
     (Record 16) indicate that McReynolds, a special assistant to 
     the Secretary of the Interior, asked about the ``status of 
     our [FDIC] potential claims and how OTS is organized, 
     etc.'' He needed ``someone to describe our [FDIC] claims 
     and FDIC/OTS roles.'' He said that the DOI is receiving 
     ``calls almost daily from members of Congress and private 
     citizens.'' McReynolds pressed for a meeting that week 
     (the week of July 17, 1995) because of his vacation and 
     travel schedule. At that juncture, DeHenzel's notes say 
     that McReynolds had not spoken to Jack Smith yet.
       The following day, DeHenzel consulted about the McReynolds 
     inquiry with ``JVT,'' John V. Thomas, the same FDIC lawyer 
     who attended the Rep. Hamburg meeting in November 1993. Mr. 
     Thomas told him to talk to Jack Smith and Alice Goodman. The 
     notes say that ``JVT's reaction--Smith & Goodman should be 
     there with us'' (Record 16) for the meeting with McReynolds.
       Then the unexpected occurred. On July 20, 1995, Mr. Hurwitz 
     refused to extend the statute of limitations tolling 
     agreement with the FDIC (Record 17, See, footnote 1 on page 
     2). He had last done so on March 27, 1995, and that extension 
     was to expire on July 31, 1995. As a result, any lawsuit by 
     FDIC regarding USAT claims against Mr. Hurwitz were required 
     to be filed by August 2, 1995, just thirteen days later. It 
     was just three days after Mr. McReynolds contacted the FDIC 
     for a meeting about the potential FDIC and OTS actions 
     against Mr. Hurwitz that the FDIC was told that Mr. Hurwitz 
     would not extend the tolling agreement.
       The FDIC was unprepared for this action. They had enjoyed 
     six years and eight months of discovery during which they 
     were lobbied by outside groups and Members of Congress on the 
     completely unrelated issue of pursuing the redwoods debt-for-
     nature swap. However, the agency had failed to be it job and 
     cobble together enough evidence supporting a banking claim 
     involving USAT and Mr. Hurwitz. They were not ready to file a 
     compliant or drop the case on their own volition, even though 
     Mr. Hurwitz provided voluminous records to the agency in the 
     discovery process, records that defined the facts and 
     illuminated issues raised by the FDIC.
       As a result, the FDIC was facing two issue--the request for 
     a meeting with the Office of the Secretary of the DOI and the 
     need to address the fact that they did not have the USAT case 
     prepared after more than six years of investigation.
       They addressed these issues internally in a July 20, 1995, 
     meeting between ``Mr. Jack Smith, JVT [John V. Thomas, FDIC 
     lawyer], MA [Maryland Anderson, FDIC lawyer], JW [Jeff 
     Williams, FDIC lawyer], and Robert DeHenzel.'' (Record 18)
       It is clear from this meeting that the FDIC lawyers were 
     not anxious to recommend a lawsuit against Hurwitz. They did 
     not have a case, because it did not meet their internal 
     standards. Instead they preferred to hinge their action on 
     whether OTS brought the administrative action, the action 
     that they prompted and paid OTS to bring against Hurwitz. 
     This is an odd trigger for an agency that does admits it does 
     not have a case, disavows it seeks redwoods, and is only 
     interested in receiving ``cash.''
       Thus, the FDIC lawyers' behavior is somewhat 
     schizophrenic--on the one hand they know their internal 
     policies will not let them bring a suit, but on the other had 
     they want to sue Mr. Hurwitz (and not other potential 
     defendants). They then begin constructing the justification 
     for doing so around the notion that the potential claims 
     against Mr. Hurwitz are somehow special--not ``ordinary.'' 
     They also apparently talk of telling Mr. McReynolds what they 
     will do--evidence of further improper coordination with the 
     DOI outside of normal FDIC operating parameters. Mr. Thomas' 
     notes from the internal FDIC meeting (Record 18) explain:

       Re: McReynolds--Kosmetsky-Hurwitz-Tolling
       Jack [Smith]--we will not go forward if OTS files a case
       --if OTS does not file suit, we still have to decide our 
     case on the merits before tolling expires
       *Memo to the GC [General Counsel] to Chairman--update 
     status of case & recommends that we let Kozmetsky out.
       If suit against Hurwitz--we sue only him and not others.
       Find out if Hurwitz will toll
       Write a memo on case status to GC 10 page memo should do 
     it!
       continue tolling
       sue or let them go
       If ordinary case, we do not believe there is a 50% chance 
     we will prevail therefore, we cannot recommend a lawsuit.
       McReynolds--handle same as the Hill presentation (Record 
     18)

       Clearly, the thinking coming out of the July 20, 1995, 
     meeting was that the FDIC lawyers were not ready to make a 
     recommendation on the merits of the case. Continued tolling 
     was not an option because Mr. Hurwitz refused to sign a 
     tolling extension, so the options ``sue or let them go'' were 
     the only viable options. If it were an ordinary case the 
     preference at that point would be to close the case out--that 
     is let them go.
       FDIC lawyer, Mr. John Thomas' later notes outlining some 
     points for that memo to the General Counsel tell us why this 
     was not the ``ordinary'' case: ``[G]iven (a) visibility--tree 
     people, Congress & press . . . we thought you--B[oard]d--
     should be advised of what we intend to do--and why--before it 
     is too late.'' (Record 22)
       What Mr. Thomas was saying is that the staff intends to 
     close out the case, and if the FDIC board wants to do 
     otherwise before the case is closed (administratively by the 
     staff or by virtue of the statute of limitations running), 
     then the Board must intercede.
       Importantly, the FDIC lawyers deviated from ordinary 
     operating procedures because of the intense lobbying campaign 
     for the redwoods debt-for-nature swap. Clearly, the intense 
     lobbying effort by the environmental groups, by their outside 
     counsel, by the DOI, by the White House, and by other federal 
     entities was effective! At that point the bank regulators 
     bought the redwoods scheme, but were unprepared then to 
     totally disregard their what they knew they should do under 
     their rules and guidelines, so the staff punted the issue to 
     the board.
       The FDIC had already injected itself into a political 
     issue. Their dilemma was summed up by Mr. Thomas in notes 
     preparing for a discussion on the USAT claims with the board 
     apparently scribed a few days later:

       Dilemma (why they [the FDIC Board] get paid the big 
     bucks)--take:
       Hit for dismissed suit
       Hit for walking based on staff analysis of 70% loss of 
     most/all on S of L [statute of limitations]
       (Record 23)

       The action by the FDIC of treating this case differently 
     than the ``ordinary'' case and the concerted manipulation of 
     hiring the OTS to pursue parallel claims to be used as 
     leverage sends the strong message: if someone wants to 
     influence bank regulators on an entirely collateral issue, 
     and politically manipulate the bank regulators, they can 
     successfully do it.
       All that must be done to use the bank regulators to achieve 
     a collateral issue is to pursue two year public relations 
     campaign aimed at them, swamp the bank regulators with cards 
     and letters about the collateral issue, write and submit 
     various legal briefs for them that link the collateral issue, 
     meet with the bank regulators about the collateral issue, 
     organize congressional letters advocating the collateral 
     issue, hold secret meetings with Members of Congress bout 
     the collateral issue, hold ``protest'' rallies outside of 
     their meetings, and do whatever else it takes so that at 
     the end of the day, bank regulators do not follow ordinary 
     procedures.
       Indeed, the redwoods debt-for-nature swap became linked to 
     USAT and Mr. Hurwitz just

[[Page E2423]]

     as the environmental groups wished. This was not the ordinary 
     case--it was going to the FDIC Board even though the FDIC 
     admitted their case had a 70 percent chance of being 
     dismissed because of the statute of limitations, and was more 
     likely than not of falling on the merits if they were 
     reached.
       Apparently, the FDIC legal staff was prepared to tell 
     McReynolds and ``the Hill'' [Congress] the same thing--their 
     course of action described in the July 20, 1995, meeting 
     notes (Record 18). This modified procedure still left the 
     door open for the board to act against staff recommendations 
     and authorize the suit anyway--something that may not have 
     been ideal from Mr. McReynolds perspective, but would still 
     leave open the possibility of the leverage that DOI desired 
     against Mr. Hurwitz.
       Then something else changed on July 21, 1995, which was the 
     day following the internal FDIC meeting on their potential 
     claims against Mr. Hurwitz. The change caused the entire 
     approach of the FDIC lawyers to evolve again. What changed 
     was not any new information about the facts of the potential 
     claims against Mr. Hurwitz related to USAT. What changed was 
     not any favorable development in law that strengthened their 
     potential claims against Mr. Hurwitz related to USAT. What 
     changed was not any analysis about the nature or strength of 
     the potential claims against Mr. Hurwitz. All of these things 
     remained the same.
       What changed was the realization by the FDIC lawyers, as 
     communicated by a senior DOI official, that (1) the Clinton 
     Administration and the DOI, had adopted and embraced the 
     redwoods debt-for-nature scheme and they wanted the scheme to 
     be successful, and (2) the FDIC's potential banking claims 
     were critical to pulling off that redwoods debt-for-nature 
     scheme. The potential banking claims--the same claims that 
     the FDIC lawyers would have dropped using ``delegated 
     authority''--were the leverage that were critical to making 
     the redwoods debt-for-nature scheme work.
       That realization occurred when the FDIC lawyers met with 
     Mr. McReynolds on Friday, July 21, 1995, at 11:00 a.m. 
     (Record 19), just as he had requested on Monday, July 17, 
     1995. Meeting notes indicate that background about the 
     redwoods and endangered species issues associated with Mr. 
     Hurwitz's redwoods were initially discussed (Record 20). 
     Other background about Governor Wilson's task force and the 
     willingness of California to participate in the deal were 
     discussed, as were Mr. Hurwitz's valuations of the property 
     (Record 20). Apparently, McReynolds laid out some of the 
     basics about the redwood acreage. He was familiar with the 
     issue from first hand experience because he had flown over 
     the redwoods with Jill Ratner during the week of May 8, 
     1995 (See, Record 11): ``H[urwitz] values 8K [acres] at 
     $500 m. Interior wants to deal it down. H[urwitz] really 
     wants $200m total. Calif. Deleg[ation] is really putting 
     pressure on.'' Dallas/Ft Worth--Base closure.
       The FDIC also told McReynolds about the meeting that FDIC 
     lawyers had set for the following Wednesday, July 26, 1995, 
     with the OTS to discuss the USAT matter. They told Mr. 
     McReynolds about the fact that they were doing the memo to 
     the Chairman (the 10 page memo they concluded they needed in 
     their July 20, 1995, meeting amongst the FDIC lawyers, See 
     Record 18). The entry regarding this in Record 20) is 
     reproduced below: ``Wed [July 26] 10:30 mtg w/OTS. Memo for 
     Chairman.'' (Record 20)
       Eric Spittler's notes from the July 21, 1995, meeting add 
     helpful details, and they are reproduced below:
       $400,000 expenses on OTS
       Have not decided whether to bring case--won't decide for 
     months.
       Alan Reynolds--Adm[inistration] want to do deal
       Gov. Wilson w/DOI had task force of 6 groups
       Told to find a way to make it happen
       CA will trade $100m in CA [California] timber
       Adm[inistration] might trade mil[itary] base
       Had call from atty. Appraisal on prop[erty] for $500m. Said 
     they want to make a deal. Don't know how much credence we 
     have from them about a claim. At same time telling them to 
     get rid of claim. He can't cut them down.
       If we drop suit, will undercut everything. (emphasis 
     supplied) (Record 21)

       So, the FDIC knew--according to the meeting notes--that if 
     the FDIC dropped the suit by letting the statute of 
     limitations run, ``it will undercut everything'' related to 
     the redwoods scheme that was just discussed with McReynolds. 
     In other words, letting the statue of limitations expire--the 
     ``ordinary'' procedure and recommendation of the FDIC lawyers 
     at the time--meant the leverage for the redwoods debt-for-
     nature deal would evaporate, as would the scheme to get 
     Hurwitz's redwoods. Thus, the notes confirm a redwoods debt-
     for-nature scheme and that FDIC did not really know whether 
     Mr. Hurwitz believed that the FDIC had a valid claim--further 
     evidence of the fact that the claims were indeed weak 
     substantively and procedurally.
       In this context--where the FDIC knew its claims (and the 
     claims it was paying OTS to pursue) were the essential 
     leverage for the redwoods--the FDIC lawyers began drafting 
     the memo. Clearly, the agency was struggling with the fact 
     that dropping the claims was inconsistent with what the DOI 
     and the Administration needed to accomplish the redwoods 
     debt-for-nature swap.
       The handwritten outline of Mr. John Thomas (Record 22) 
     reviewed the major points in the contemplated memo to the 
     Chairman. The outline reiterated the linkage between FDIC and 
     OTS, and it reinforced staff conclusion that the USAT claims 
     against Mr. Hurwitz should be left to expire otherwise the 
     court would dismiss them. Mr. John Thomas' outline clearly 
     show that if this case were ``ordinary'' it would be closed. 
     Pressure for redwoods was the justification for informing the 
     Board of the staff's intent to close out the case, and the 
     option of pursuing the case for purposes of leverage was 
     therefore left open. Mr. Thomas' outline, which appears to be 
     composed for the 2:00 p.m. briefing of the Chairman on July 
     26, 1995, (Record 22) is partially reproduced below--

       May recall briefed re OTS--[FDIC is] paying [the OTS]--some 
     months ago.
       OTS is making progress, but not ready. Thus, tolling again.
       OTS staff hopes to have draft notice of charges to Hurwitz, 
     et al. Aug./Sept.
       (Apologize for short fuse)--we thought we would be able to 
     put off a final decision until OTS acted. Hurwitz refused to 
     toll.
       Normal matter, we would close out under delegated authority 
     w/o [without] bringing it to your Bd's attention.
       However, given
       (a) visibility--tree people, Congress & press
       (b) [OMITTED]
       we thought you-Bd-should be advised of what we intend to 
     do--and why--before it is too late.

                           *   *   *   *   *

       Bottom line: likely to lose on S of L [statute of 
     limitation]--let it go or have ct. dismiss it.
       Continue to fund OTS
       We'd also write Congress re what & why rather than awaiting 
     reaction
       Redwood Swap--
       Interior/Calif.
       Forest--[military] base--FDIC/OTS claim(?)
       (Record 22)

       This outline reinforces the approach and dilemma described 
     by FDIC lawyers in their July 20, 1995, meeting. First, there 
     was coordination with the OTS claims to get redwoods. That's 
     because FDIC's possible claims were losers on substantive and 
     procedural (statute of limitations) grounds. Second, ordinary 
     procedures to close out the matter were circumvented due to 
     ``visibility'' from the redwoods debt-for-nature campaign of 
     the ``tree people'' (Earth First! and the Rose Foundation), 
     Congress, and the press. Third, the Department of the 
     Interior's ``Redwood Swap'' was taking shape and FDIC lawyers 
     were beginning to coordinate with DOI staff.
       All these factors combined to override the normal course of 
     action, which was to close out the case. Instead, the Board 
     would get the decision. All of this confirmed in John Thomas' 
     own handwritten outline (Record 22), and all of it adding up 
     to show that the redwoods debt-for-nature scheme had a real 
     impact on the approach of the FDIC's lawyers. It had yet to 
     skew the FDIC's final judgment based on early versions of the 
     memo to the Chairman (Document X), but the final version 
     dated July 27, 1995, would reflect skewed judgment.
       The memo was drafted, and a version reflecting Mr. Thomas' 
     notes and all of the prior internal staff discussions was 
     produced and dated July 24, 1995. The drafts are Document X, 
     and the final before the reversal is Document X, pages ES 
     0490-0495. It contains an unsigned signature block. 
     Highlights of this memo are reproduced below and they tell 
     exactly what the FDIC lawyers would advise the FDIC 
     Board: ``We had hoped to delay a final decision on this 
     matter until after OTS decides whether to pursue claims 
     against Hurwitz, et al. However, we were advised on July 
     12, 1995 that Hurwitz would not extend our tolling 
     agreement with him. Consequently, if suit were to be 
     brought it would have to be filed by August 2, 1995. We 
     are not recommending suit because there is a 70% 
     probability that most or all the FDIC cases would be 
     dismissed on statute of limitations grounds. Under the 
     circumstances the staff would ordinarily close out the 
     investigation under delegated authority. However 
     (evidenced by numerous letters from Congressmen and 
     environmental groups), we are advising the Board in 
     advance of our action in case there is a contrary view.'' 
     (emphasis supplied) (Document X, page ES 0490)
       And in discussing the merits, the memo again advised: ``The 
     effect of these recent adverse [court] decisions is that 
     there is a very high probability that the FDIC's claims will 
     not survive a motion to dismiss on statute of limitations 
     grounds. We would also be at increased risks of dismissal on 
     the merits. Because there is only a 30% chance that we can 
     avoid dismissal on statute of limitations grounds, and 
     because even if we survived a statute of limitations motion, 
     victory on the merits (especially on the claims most likely 
     to survive a statute of limitations motion) is uncertain 
     given the state of the law in Texas, we do not recommend suit 
     on the FDIC's potential claims.'' (emphasis supplied) 
     (Document X, page ES 0493-0494)
       The memo then discusses the redwood forest matter, an 
     interesting notion given the fact that the FDIC has 
     consistently maintained that the redwoods were not at all 
     connected to their litigation: ``The decision not to sue 
     Hurwitz and former directors and officers of USAT is likely 
     to attract media coverage and criticism from environmental 
     groups and member of Congress. Hurwitz has

[[Page E2424]]

     a reputation as a corporate raider, and his hostile takeover 
     of Pacific Lumber attracted enormous publicity and litigation 
     because of his harvesting of California redwoods. 
     Environmental interests have received considerable publicity 
     in the last two years, suggesting exchanging our D&O 
     [director and officer] claims for the redwood forest. Only 
     July 21, we met with representatives of the Department of the 
     Interior, who informed us that they are negotiating with 
     Hurwitz about the possibility of swapping various properties, 
     plus the possibility the FDIC/OTS claim, for the redwood 
     forest. They stated that the Administration is seriously 
     interested in pursuing such a settlement. This is feasible 
     with perhaps some new modest legislative authority . . . We 
     plan to follow up on these discussions with the OTS and 
     Department of [the] Interior in the coming weeks. . . . When 
     the Hurwitz tolling agreement expires, we would recommend 
     that we update those Congressmen who have inquired about 
     our investigation and make it clear that this does not end 
     the matter of Hurwitz's liability for the failure of USAT 
     because of the ongoing OTS investigation.'' (Record X, 
     pages ES 0493-0494).
       It is helpful to understand that there were four major 
     versions of this memo drafted and revised. The drafts of this 
     memo are all type-dated July 24, 1995, and they all reference 
     discussions with the Department of the Interior. These drafts 
     are Document X, which was made part of the Task Force hearing 
     record by unanimous consent.
       However, one version of this memo contains numerous 
     handwritten changes, including a date that was changed from 
     July 24, 1995, to July 27, 1995 (Document X, pages PLS 
     000192-000195). The changes amount to the complete and total 
     reversal in approach to the USAT claims related to Mr. 
     Hurwitz. The July 27, 1995 version is the text that was 
     incorporated into the Authority to Sue (ATS) cover Memorandum 
     that was itself dated July 27, 1995. It, with the ATS memo 
     (Document L, EM 00123-00135), went to the FDIC Board, and it 
     recommended the suit against Mr. Hurwitz be brought.
       The July 27 final version rolled into the ATS memo also 
     discusses the ``Pacific Lumber-Redwood Forest Matter'' 
     (Document L, page EM 00129). Therein, it notes the July 21, 
     1995, FDIC meeting with ``representatives of the Department 
     of the Interior [McReynolds], who informed us [the FDIC] that 
     they are negotiating with Hurwitz about the possibility of 
     swapping various properties, plus the possibility of the 
     FDIC/OTS claim, for the redwood forest.'' (Document L, page 
     EM00129). The memo also says that the ``Administration is 
     seriously interested in pursuing such a settlement.''
       Note what the memo does not say. It does not say Mr. 
     Hurwitz raised the issue of redwoods and linked them in any 
     way to the banking claims. It says that the Administration is 
     negotiating a swap of possible properties, plus the banking 
     claims. When the bank regulators learned of this (probably 
     from Mr. McReynolds on July 21, 1995), the bank regulators 
     should have been very uncomfortable. They had already 
     voluntarily injected themselves into a political dynamic with 
     other government agencies--one of which had apparently taken 
     their statutory obligation to recover cash by using claims 
     that belonged to the FDIC and were not even brought yet. At 
     this juncture Mr. Hurwitz had not raised the prospect of such 
     a scheme with the FDIC.
       The only other intervening event between the July 24, 1995, 
     memo draft and the July 27, 1995, reversal is a meeting on 
     July 26, 1995, at 10:30 a.m. between the FDIC and OTS. Record 
     26 is the only set of meeting notes from that meeting, and 
     the notes reiterate the discussion between FDIC lawyers and 
     Mr. McReynolds on July 21, 1995. This puts the OTS squarely 
     inside the redwoods debt-for-nature scheme.
       The notes are very helpful to show the degree of 
     coordination between the FDIC and OTS about redwoods and the 
     linkage between the potential claims and redwoods. They also 
     show how the FDIC polluted the OTS decision-making with the 
     same political dynamic it had been part of for more than a 
     year. The FDIC staff summed up the situation and briefed OTS 
     about all of the important redwoods developments related to 
     Mr. Hurwitz:

       J. Smith'
       Hurwitz won't sign tolling agreement with FDIC--need to 
     file lawsuit by 8/12
       J. Thomas-chances of success on stat. Limitations is 30% or 
     less
       will continue discussions with Helfer
       Pressure from California congressional delegation to 
     proceed
       Dept. of Interior--Alan McReynolds
       Administration interested in resolving case & getting 
     Redwoods
       Pete Wilson has put together a multi-agency task group
       Calif would put up $100 MM of Californai timberland
       Hurwitz wants a military base between Dallas & Fort Worth--
     Suitable for commercial development
       Hurwitz also wants our cases settled as part of the deal
       Two weeks ago-Hurwitz lawyer called Teri Gordon at home & 
     told him he should not be turned off by the $500 MM appraisal
       What is OTS' schedule? How comfortable is OTS w/ giving 
     info to Interior?
       (Record 26)

       None of the records reviewed contains any banking law 
     rationale for the reversal in the staff recommendation July 
     24, 1995, (which was to notify the board that they would 
     close out the potential claim against Mr. Hurwitz by letting 
     the statute of limitations run) and the July 27, 1995, 
     approach (which recommended a lawsuit against Mr. Hurwitz). 
     The only explanation for the reversal is the meeting with Mr. 
     McReynolds where the DOI and Administration's desire for 
     leverage was communicated and understood by the FDIC coupled 
     with the meeting with OTS where bank regulators from both 
     agencies discussed the Administration's desire for the 
     redwoods debt-for-nature scheme to succeed. At this juncture, 
     the thinking was that there would be no money for an 
     appropriation for the Headwaters, so a swap of some sort was 
     the only way to acquire the redwoods.
       The FDIC board only saw the July 27, 1995, memo. In their 
     meeting they discussed the redwoods scheme when the discussed 
     bringing the action against Mr. Hurwits (Record 27). As part 
     of his briefing, Mr. John Thomas elaborates on the redwood 
     scheme to the FDIC board:

       Mr. THOMAS. This is, of course, a very visible matter. It 
     is visible for something having no direct relationship to 
     this case, but having some indirect relationship. Mr. 
     Hurwitz, through Maxxam, purchased Pacific Lumber. Pacific 
     Lumber owns the largest stand of virgin redwoods in private 
     hands in the world, the Headwaters. That has been the subject 
     of considering--considerable environmental interest, 
     including the picketing downstairs of a year or so ago. It 
     has been the subject of Congressional inquiry and press 
     inquiry. So we assume that whatever we do will be visible.
       Interior, you should also be awar--aware, the Department of 
     Interior is trying to put together a deal to the headlines 
     [sic] [Headwaters] trade property and perhaps our claim. They 
     had spoken--they spoke to staff a few days ago about that and 
     staff of the FDIC has indicated that we would be interested 
     in working with them to see whether something is possible. We 
     believe that legislation would ultimately be required to 
     achieve that. But again, if it's the Board's pleasure, we 
     would at least try to find out what's happening and pursue 
     that matter and make sure that nothing goes on we're not 
     aware of--we're not part of. (Record 27, page 11-12)

       Later, Chairman Helfer raised the issue of whether bringing 
     suit enhances the prospect of settlement of non-banking 
     issues, that is the redwoods:

       Chairman HELFER. . . . does the FDIC's authorization to sue 
     enhance the prospect--the prospects for a settlement on a 
     variety of issues associated with the case?
       Mr. THOMAS. It might have some marginal benefit, but I 
     don't think it would make a large difference. I think the 
     reality is that the FDIC and OTS staff have worked together, 
     expect to continue to work together, and so, I don't think it 
     would have a major impact. It might make some difference, but 
     I think particularly any effort to resolve this with . . . a 
     solution that involves the redwoods would be extremely 
     difficult. (Record 27, page 16)

       These exchanges in the FDIC board meeting about the 
     redwoods are troubling simply because they occurred. They 
     injected factors that had nothing whatsoever to do with the 
     validity of banking claims against Mr. Hurwitz. The advice 
     and recommendations on July 27, 1995, deviated so widely from 
     the approach of staff that would have ordinarily taken to 
     close the case administratively. They deviated even more 
     from the approach they would have taken before the 
     McReynolds meeting on July 21, 1995, where they came to 
     understand that the Administration needed the leverage for 
     the redwoods swap.
       The deviation is likely a result of that meeting, coupled 
     with the OTS meeting on July 26, 1995, where they coordinated 
     on the claims they were paying the OTS to pursue and 
     conspired about the need for leverage to get the redwood 
     claims. The FDIC understood at that point that OTS's claims 
     may not be brought for months (or perhaps at all) and they 
     certainly knew that if ``we drop our suit, [it] will undercut 
     everything.'' (Record 21)
       The day following filing of the suit, FDIC lawyers sent a 
     memo to their communications department reiterating the 
     congressional and environmental interest due to the redwoods 
     issue. (Record 28) The memo explained conspiracy with the 
     Department of the Interior and how the department had been 
     negotiating for the redwoods using the FDIC and OTS claims. 
     The memo also indicated that it was the Administration that 
     was ``seriously interested in pursuing such a settlement.'' 
     (Record 28, page 2) In addition, as if the FDIC lawyers knew 
     they were doing something wrong, the memo emphasized that 
     ``All of our discussions with the DOI are strictly 
     confidential.'' (Record 28, page 2)
       Then the memo went on to suggest that the FDIC should not 
     disclose these discussions or deviate from the prior public 
     statement about redwoods. Basically that statements was that 
     if a redwood ``swap became an option, the FDIC would consider 
     its as one alternative and would conscientiously strive to 
     resolve any pertinent issued.'' (Record 28, page 2)
       The work on a redwoods swap by the FDIC and the Department 
     of Interior then grew as indicated by the volume of notes 
     from meetings where other federal entities were drawn into 
     the scheme. There was an August 2, 1995,

[[Page E2425]]

     DOI Headwaters acquisition strategy paper drafted by Mr. 
     McReynolds. It reports the FDIC and the OTS ``are amendable 
     to [a debt for nature swap] if the Administration supports 
     it.'' (Document DOI B). This is blatant evidence of just how 
     political the FDIC's July 27, 1995, reversal was.
       There was the August 15, 1995, meeting between DOI, FDIC 
     (Smith), and OTS (Renaldi and Sterns) (Document DOIC, page 2) 
     where it was reported that ``FDIC and OTS are wondering why 
     DOI is not being more aggressive with Hurwitz and is 
     permitting [Governor] Wilson's task force to take force to 
     take the lead'' (Document DOIC, page 2). This is a stunning 
     indictment of the political motivation of the FDIC and OTS 
     staff.
       There was coordination with Congressional offices (Document 
     DOID).
       There was endorsement from the Assistant Secretary of DOI 
     of using the FDIC and yet to be filed OTS claims in exchange 
     for the redwoods (Document DOIE).
       There were multi-agency meetings that included the White 
     House OMB and CEQ (Document DOI F and H)
       The Vice President was lobbied by Jill Ratner for his 
     support of the redwoods scheme as was the White House 
     (Document DOI G), and bi-weekly conference calls were 
     occurring between the FDIC, the OTS, and the DOI to 
     coordinate on the redwoods scheme by September 1995.
       There was the October 1995, memo to the General Counsel of 
     FDIC about a scheduled meeting that was to occur on October 
     20, 1995 with Vice President Gore about the FDIC and OTS 
     claims and their integral linkage to leveraging redwoods. Mr. 
     Kroener, testified that the meeting never occurred, but the 
     information in the memo is nonetheless illuminating, and it 
     contradicts FDIC's statements that they were not after 
     redwood trees.
       The memo verifies that Mr. Hurwitz was not interested and 
     had not raised the notion of a redwood swap for FDIC or OTS 
     claims. The memo says OTS met with Hurwitz's lawyer and ``no 
     interest in settlement has been expressed to OTS.'' (Record 
     33, page 2). The memo says that FDIC ``has had several 
     meetings and discussions with Hurwitz counsel prior to the 
     filing of the lawsuit. Hurwitz has never, however, indicated 
     directly to the FDIC a desire to negotiate a settlement of 
     the FDIC claims.'' (Record 33, page 2).
       This puts to rest the notion that Mr. Hurwitz was or had 
     been interested (or had raised) the notion of a redwoods swap 
     for the OTS or FDIC claim up to that point. Apparently, the 
     FDIC relied on erroneous representations of Mr. McReynolds to 
     the contrary.
       Then, in an incredible self-indictment, the FDIC observes 
     that it is ``inappropriate to include OTS'' in the meeting to 
     discuss possible settlement with Hurwitz because the OTS 
     claim was not approved for filing, and discussions may be 
     perceived as ``an effort by the executive branch to influence 
     OTS's independent evaluation of its investigation'' (Record 
     33, page 2). What exactly, then, did the FDIC think its 
     February 1994 meeting with Rep. Hamburg would do to its 
     independent judgment? What did the FDIC think repeated 
     contacts with environmental groups since 1993 would do? What 
     did the FDIC think that its meetings with Mr. Reynolds right 
     before their staff recommendation changed in July 1995 would 
     do? Why did the FDIC and the OTS meet and have phone 
     briefings with DOI in July, August, September 1996. All of 
     these contacts were just as inappropriate then as they were 
     when FDIC staff wrote the briefing memo for Vice President 
     Gore's meeting. Did the FDIC lawyers take an ethics class 
     sometime between February 1994 and October 1995?
       In fact, the FDIC intended to help the Administration force 
     Mr. Hurwitz into trading his redwoods for the FDIC and OTS 
     claims. They wanted to induce a settlement, and their words 
     say it. There meeting with the Vice President was an 
     important meeting, and the memo to Mr. Kroener to prepare for 
     the meeting (Record 33) was remarkable candid: ``FDIC has 
     no direct claim against Pacific Lumber through which it 
     could successfully obtain or seize the tree or to preserve 
     the Headwaters Forest.''

                           *   *   *   *   *

       ``FDIC's claims alone are not likely to be sufficient to 
     cause Hurwitz to offer the Headwaters Forest, because of 
     their size relative to a recent Forest Service Appraisal of 
     the value of the Headwaters Forest ($600 million); because of 
     very substantial litigation risks including statute of 
     limitations, Texas negligence--gross negligence business 
     judgment law, and Hurwitz role as a de factor director, and 
     the indirect connection noted above, including the risk of 
     Hurwitz facing suit from Pacific Lumber securities holders if 
     its assets were disposed of without Pacific Lumber being 
     compensated by either outsiders, or Hurwitz or entities he 
     controls.'' (record 33, page 3) (emphasis supplied)
       Two things are clear after reading this passage. First, 
     FDIC staff intended the claim to operate as an inducement, 
     along with the OTS claim for trees. Second, that there is no 
     other rational, after reading this evaluation, for the FDIC 
     lawyers to have switched their recommendation between July 24 
     and July 27, 1995--except that they intended all along to 
     help the Administration by playing a part in inducing a 
     settlement.
       After reading this passage, one wonders why the FDIC still 
     attempts to propagate the obviously false notion that their 
     claims had nothing to do with redwoods.
       There was the October 22, 1995, meeting that included a 
     cast from DOI, OMB, FDIC, DOJ, and the Department of Treasury 
     ``at which we [CEQ] initiated discussions on a potential 
     debt-for-nature swap.'' (Document DOI H) That meeting led to 
     FDIC attorney Jack Smith compiling a lengthy memorandum to 
     Kathleen McGinty, the Chairman of CEQ. The memo reviews 
     issues and answers about the feasibility of various legal 
     mechanisms that might be used to facilitate the redwoods 
     debt-for-nature scheme. (Record 30).
       Then in late 1995, Judge Hughes, the U.S. District Court 
     judge who was assigned the FDIC's lawsuit discovered what the 
     FDIC and OTS had done to team up using overlapping authority 
     to harass Mr. Hurwitz (Record 37 and document A) and the 
     banking regulators' redwood debt-for-nature scheme began 
     to be exposed.
       At the same time (November 28, 1995) FDIC lawyers met with 
     Katie McGinty (CEQ), Elizabeth Blaug (CEQ), and John 
     Girimundi (DOI) where it was decided that there would be ``no 
     formal contacts until OTS file,'' (Record 38) and it was 
     acknowledged that ``after the administrative suit is filed is 
     time for opening any discussions.'' However, the FDIC had 
     already had several discussions with OTS about the redwoods 
     swap, as had DOI staff beginning in July 1995, even before 
     the FDIC claim was filed.
       The notes from meetings between the FDIC and/or the OTS and 
     environmental groups, government agencies, federal 
     departments, the White House, from September 1995 through 
     March 1996. (Record 31)
       1996: FDIC Lawyers Cannot Find Their Way Out of the 
     Forest--help, ``we need an exit strategy from the Redwood''
       By January 6, 1996, the redwoods scheme had come together 
     as planned. John Thomas reported to Jack Smith in a weekly 
     update. ``United Savings. OTS has filed their notice of 
     charges. The statute has been allowed to run by us [FDIC and 
     OTS] on everyone other than Hurwitz. We have moved to stay 
     our case in Houston, and are awaiting a ruling. . . . and 
     there is question of whether a broad deal can be made with 
     Pacific Lumber.'' (Record 36)
       Shortly thereafter, on January 19, 1996, the fact that Mr. 
     Hurwitz had not directly brought the issue of the redwoods 
     into settlement discussions became a problem. OTS apparently 
     refused to join the meetings led by CEQ about Headwaters, and 
     an FDIC lawyer reported the refusal to CEQ: ``I advised 
     Elizabeth Blaug about this yesterday afternoon. I said that 
     if Hurwitz wanted to have global settlements with OTS and 
     FDIC involved, he would have to ask for them.'' (Record 36A)
       In other words, the ex parte agency discussions (without 
     Mr. Hurwitz) about FDIC and OTS banking claims were at least 
     improper, and the impropriety was not realized; however, it 
     was too late.
       By March 1996, the FDIC and OTS were deeply involved with 
     promoting the redwoods debt-for-nature scheme, but they had 
     still yet to receive any direct communication from Mr. 
     Hurwitz proposing a redwoods swap for their claims. About 
     March 3, 1996, the FDIC attorneys must have begun to realize 
     that the agency should not be involved in the redwoods 
     scheme. He made the following note on what appears to be a 
     ``to do'' list:

                                  ____
                                  

                               APPENDIX 1

                               Document A

        United States District Court--Southern District of Texas

Federal Deposit Insurance Corporation and Office of Thrift Supervision, 
                              Plaintiffs.

                                 versus

                     Charles P. Hurwitz, Defendant.

                         Civil Action H-95-3956

        Opinion on Dismissal of the Office of Thrift Supervision

     1. Introduction.
       The Federal Deposit Insurance Corporation sued Charles 
     Hurwitz for improprieties as corporate officer that led to 
     the failure of a bank Hurwitz's corporation owned. While the 
     suit was in its preliminary stages, the FDIC procured the 
     Office of Thrift Supervision to use its powers to bring a 
     parallel administrative action against the officer. Over the 
     OTS's objection, this court joined the OTS as an involuntary 
     plaintiff in this suit since it had decided to affect the 
     outcome. Now, the FDIC has amended its pleadings to abandon 
     its claims that duplicate those in the OTS's action; although 
     this is yet another manipulation of the court system by the 
     FDIC, the OTS will be dismissed.
     2. Claims.
       Charles Hurwitz was a member of the board of three 
     different corporations that had an interest in United Savings 
     Association of Texas. After United's failure in 1988, the 
     FDIC began investigating Hurwitz. Cooperating with the 
     government, Hurwitz signed a succession of agreements to 
     extend the deadline for the government to act. After eight 
     years of investigation by the FDIC and the OTS with no 
     resolution in sight, Hurwitz declined to extend the statute 
     of limitations again. The FDIC sued Hurwitz on a variety of 
     claims arising from the operation of United. When distilled, 
     the claims are that
        Hurwitz failed to maintain the net worth of 
     United, and
        Hurwitz mismanaged United's mortgate-backed 
     security portfolios.
       Three months later, the OTS notified Hurwitz that it 
     intended to file an administrative ``notice of charges'' on 
     substantially

[[Page E2426]]

     the same claims in addition to violations of banking 
     regulations. The court joined the OTS to minimize duplicative 
     and--as it turns out--duplicitous proceedings and to avoid 
     inconsistent findings about the same transactions.
     3. Joinder.
       The OTS was properly joined as a party. A party may be 
     joined as an involuntary plaintiff when it claims an interest 
     in the subject matter of the suit and its absence would leave 
     another party at risk of incurring multiple or inconsistent 
     obligations, Fed. R. Civ.P. 19(a)(2)(ii).
       The government argues that this court may not join the OTS 
     because it lacks jurisdiction. It says that the statute 
     creating the OTS specifically divested district courts of 
     jurisdiction. The statute say that a district court may not 
     issue an order that affects the administrative process. The 
     government, reading its protection from independent 
     examination broadly, says that any action taken by this court 
     in this case will necessarily affect the OTS's administrative 
     proceedings, making it barred. See 12 U.S.C. Sec. 1818(I)(1).
       The scope of the statutory prohibition of court 
     intervention is limited to actions by the court to impede the 
     issuance or enforcement of a notice or order of the OTS; 
     every determination of law affects the OTS.
       The government claims more for its precedents than a 
     reading of them will support. Certainly, none of the cases 
     indicates that a federal court has no authority to join the 
     OTS as an involuntary plaintiff. Compelling the OTS to 
     participate in a case is far different from preventing it 
     from continuing its own case. See Board of Governors of 
     Federal Reserve System v. MCorp Fin. Corp., 502 U.S. 31 
     (1992); Board of Governors of Federal Reserve System v. DLG 
     Fin. Corp., 29 F.3d 993 (5th Cir. 1994). RTC v. Ryan, 801 F. 
     Supp. 1545 (S.D. Miss. 1992). Only when a court seeks to 
     enjoin, not merely join, might the court exceed its 
     jurisdiction. In fact, federal courts have exercised 
     jurisdiction over the OTS when, as here, the relief sought 
     does not prevent the OTS from pursuing its administrative 
     proceedings. See, e.g., Far West Fed. Bank v. OTS, 930 F.2d 
     883, 886, 890-91 (Fed. Cir. 1991).
     4. One Government.
       These two agencies insist that they serve different 
     statutory purposes and should not be compelled to work 
     together. Despite the currently popular usage of the label 
     ``Independent agency,'' no agent can be independent; without 
     a principal, there can be no agent. Here two limited agents 
     of the United States government claim to be wholly unrelated. 
     They are both parts of the executive branch. It is one 
     entity, operating under a restrictive charter and for an 
     ultimate principal.
       This bureaucratic shell game is aggravated by each sub-
     unit's active misrepresentations about the role each has 
     played and the direct, total unity of financial interest. The 
     government lawyers insisted that, although the investigations 
     were perhaps parallel, the two sub-units were acting 
     completely independently from each other. That turns out not 
     to be true.
       The FDIC has hired the OTS. The OTS declined to use its 
     resources to pursue these claims, so the FDIC bought it by 
     agreeing to pay its costs. Instead of exercising regulatory 
     judgment about America's interest, the OTS is hammering 
     citizens at the direction of the FDIC.
       Although the FDIC knew that an OTS administrative 
     proceeding was imminent, it initiated this suit in federal 
     court. The FDIC and OTS worked in concert on the 
     investigations, and the FDIC funded both investigations. The 
     same parties and the same actions are involved. The money 
     recouped by either agency will go to the FDIC.
       Hurwitz is not seeking to enjoin the OTS, directly or 
     effectively, or to ``affect by injunction or otherwise'' the 
     administrative proceedings. Furthermore, this is not 
     Hurwitz's suit. The FDIC initiated this action, knowing that 
     it had bought the initiative of the OTS.
       In January 1997, during a pre-hearing conference with the 
     hearing officer, the FDIC and OTS stated ``the bottom line'' 
     is that joining the OTS as a party to this suit ``does not 
     affect [the administrative] proceeding.'' The government has 
     judicially admitted what it now seeks to contradict.
       The law does not support the government's position, and it 
     has admitted that joining the OTS as a party in this case 
     does not interfere with the administrative proceeding. The 
     statutory limitation, therefore, does not apply to this case, 
     and this court had jurisdiction to join the OTS as an 
     involuntary plaintiff. See 12 U.S.C. Sec. 1818.
     5. Amended Complaint.
       The FDIC has given up its case against Hurwitz in this 
     court and delivered it to the OTS, getting an administrative 
     forum in Washington and avoiding the public rigor of a court 
     of law. In all important respects, the FDIC's original 
     complaint and the OTS's notice of charges are the same. Both 
     agencies essentially make two complaints: (a) the defendants 
     failed to maintain the net worth of a bank and (b) the bank's 
     mortgage-backed security portfolios were managed improperly. 
     The underlying facts of both complaints are the same. The 
     legal determinations in both would have been redundant. If 
     United stockholders owe no net worth maintenance obligation, 
     Hurwitz owes the government no money regardless of the forum. 
     Further, if Hurwitz is found to have had no operational role 
     in the bank's mortgage-backed securities portfolios, Hurwitz 
     would have no liability to a government agency.
       In the amended complaint, the FDIC's claims varnish. The 
     FDIC drops its discussion of the connection between Hurwitz 
     and Drexel--a public relations ploy--and its complaints about 
     the mismanagement of the mortgage-backed securities, 
     allegations occupying two-thirds of its original complaint.
       The only claim remaining is a contingent one. The FDIC 
     argues that, if the OTS determines Federated and Maxxam owed 
     a duty to maintain the net worth of the bank, then Hurwitz 
     breached his fiduciary duty to the bank by not compelling 
     them to honor it. The FDIC makes its claim not only 
     contingent on a favorable resolution in the OTS proceeding 
     but also contingent on the OTS's lack of success in 
     ``collect(ing)'' from Federated and Maxxam. The FDIC now 
     abandons entirely the bulk of its claims and abates its 
     remaining claim. Having hired the OTS so it had another 
     forum, the FDIC is content to leave the resolution of 
     liability to the ``independent'' regulatory process.
       The OTS will be dismissed not because it was improperly 
     joined, for its joinder was clearly permissible, but because 
     its presence in this suit is no longer relevant. The OTS was 
     joined to prevent duplicative proceedings, wasting precious 
     judicial resources, harassing the respondent citizens, and 
     risking conflicting findings of fact and law. Now that the 
     FDIC has dropped almost its entire case, these risks are no 
     longer present.
     7. Conclusion.
       The OTS was properly joined. Its presence in this case 
     would not have ``affected by injunction or otherwise'' the 
     ongoing administrative proceeding. The OTS will be dismissed 
     as a party because there is no longer a risk of duplicative 
     proceedings. The FDIC has abandoned its principal case in 
     this court.
       Hired governments and systematic falsehood are the tools of 
     cosa nostra not res publica.
       Signed October 23, 1997, at Houston, Texas.
                                                   Lynn N. Hughes,
                                     United States District Judge.

                                  ____
                                  

                              Document A2

        United States District Court--Southern District of Texas

           Federal Deposit Insurance Corporation, Plaintiff.

                                 versus

                 Charles E. Hurwitz, et al., Defendant.

                         Civil Action H-95-3956

                  Opinion on Production of FEIC Report

     1. Introduction.
       The Federal Deposit Insurance Corporation sued Charles 
     Hurwitz for his acts as corporate officer because a bank the 
     corporation owned failed. In the pretrial discovery, the 
     agency has refused to disclose its document authorizing the 
     lawsuit, commonly called an authority to sue letter. It 
     asserts its privileges not to disclose attorney-client 
     communications or attorney's work preparing the suit. The 
     document must be disclosed.
     2. Background.
       Hurwitz was a member of the board of three different 
     corporations with interests in United States Association of 
     Texas. After United failed in 1988, the FDIC began 
     investigating Hurwitz. The agency asked Hurwitz to waive his 
     protection under the statute of limitation: he did for seven 
     years. In 1995 he declined to extend the time for the FDIC to 
     bring its charges. The agency sued him in district court in 
     Texas.
       Hurwitz asked for access to the agency's authority to sue 
     letter since it is an administrative predicate for the 
     lawyers' acts and might reveal admissible evidence. The 
     agency refused. This court ordered it to disclose the report 
     after it excised the privileged matter. Hurwitz asked for the 
     full report because even the limited disclosure revealed 
     admissions against interest, including active material 
     misrepresentations of fact to the court. The report was 
     produced for court inspection, after the FDIC moved to have 
     another judge read it and rule on the disclosure. The court--
     having read the report, compared the deletions, considered 
     the legal authorities, and reflected on the record--decides 
     that disclosure is imperative.
     3. The Report.
       As the expiration of the last waiver approached, the 
     officers prepared a report to the board of directors. The 
     report to the board was written by two officers of the FDIC--
     a deputy general counsel and an associate director for 
     operations. These officers, signatures are supplemented by 
     the concurrences of the general counsel and director.
       The report discussed the factual background, regulatory 
     context, legal positions, public interest, and agency policy, 
     then it requested permission to sue Hurwitz. It recommended a 
     lawsuit and requested authority to sue. Technically the 
     report covers numerous people and companies, but the 
     principal thrust is on Hurwitz individually and Maxxam 
     Corporation, a holding company. For simplicity, Hurwitz is 
     used as a synonym for all the defendants.
     4. Attorneys, Clients and Privileges.
       A communication is privileged from compulsory disclosure in 
     litigation when:
       The client asserts the privilege.
       A lawyer acting as the client's lawyer had communicated to 
     the client.

[[Page E2427]]

       The lawyer communicated legal advice.
       The lawyer prepared a legal opinion in anticipation of 
     litigation.
       The communication had no unlawful purpose.

     See Fed. R. Civ. P. 26(b)(1), (3); Fed. R. Evid. 501; e.g., 
     Rhone-Poulenc Rorer, Inc. v. Home Indem Co., 32 F 3d 851 (3rd 
     Cir. 1994).
     5. Operating Lawyers & Counseling Operators.
       In traditional analysis, legal counsel is a staff function, 
     but directing operations is an operating function. In a 
     governmental agency sometimes the entire operation looks like 
     staff, but when one of the functions of the agency is 
     collecting claims owned through its defunct insureds, 
     management of receivables and referral to legal counsel are 
     operating decisions. The policy decision whether it is in the 
     public interest to use litigation is ultimately an operating 
     decision.
       The authors of this report were both the legal and 
     operations departments. The approvals were by both 
     departments. Neither the assistant director who co-authored 
     the recommendation and request nor the director who concurred 
     was acting as counsel to the board. Rather, they were non-
     lawyers reporting their findings to the board.
       This report is not a lawyer's opinion letter; it is an 
     ordinary internal operating document. The subject of the 
     report is claims and regulatory action, litigation and 
     probable recovery, but that does not make it advice of 
     counsel. Because the FDIC was not very good at its 
     underwriting-review or supervisory-assistance functions, it 
     is now in the liquidation business. Everything about a failed 
     bank is about claims; the FDIC's stock in trade is debits and 
     credits of uncertain value in a litigious society.
       A client that obtains its advice in a mixed form--twisting 
     the roles--must be able to disentangle the two strands 
     clearly and reliably, or it loses its privilege as it would 
     with any confusion or accession. The legal analysis in the 
     report was commingled with everything from malicious gossip 
     to historic data.
     6. Exclusions.
       In disclosing the part of the report that it knew was not 
     privileged, the FDIC excised the parts that it concluded were 
     privileged as an attorney's advice to his client. Having read 
     the whole document, the nature of the excisions demonstrates 
     the agency's bad faith.
       The agency cut a personal description of Hurwitz as a 
     ``corporate raider.''
       The agency cut an admission that the FDIC had already paid 
     $4 million to its outside counsel and expects to pay another 
     $6 million.
       The agency cut the admission that the savings and loan was 
     hopelessly insolvent when it was sold by the FDIC to 
     Hurwitz's company.
       The agency cut the OTS's involvement in discussions about 
     ``pursuing these claims.''
       The agency cut the regulatory background and general 
     history.
       The agency cut the discussion of the wholly unrelated 
     matters about Maxxam's indirect holding of Pacific Coast 
     redwood forests.
       The agency cut the discussion of Hurwitz's control of 
     companies. These things have no relation to the legitimate 
     categories of attorney-client confidences. There are some 
     exclusions that were estimates of success and descriptions 
     of defects in the claim, but the bulk of the exclusions 
     were simply a lack of candor.
     7. Estoppel & Unitary Government
       The FDIC says that it is fully independent from the rest of 
     the government. It makes this argument to avoid the complaint 
     from Hurwitz that he is being attacked by the same the 
     government of the United States in the case and in an action 
     by the Office of Thrift Supervision for the same act. Moments 
     later, the FDIC argues that it is all one government; it must 
     make this argument because it has disclosed its analysis and 
     strategy to the Office of Thrift Supervision, which 
     disclosure destroys the pretense of an attorney-client 
     confidence.
       The Office of Thrift Supervision is a mid-level function 
     within the Department of Treasury, it was created by federal 
     law to supervise the operation of savings associations--a 
     function parallel to the FDIC's with banks. Among other 
     things, the director of the OTS has the responsibility to 
     enforce part of the Federal Deposit Insurance Corporation 
     Act.
       Another federal statute created the Federal Deposit 
     Insurance Corporation. The FDIC insures deposits of banks and 
     savings associations by charging premiums. Although it has a 
     corporate name, it is merely an agency of the federal 
     government. The president appoints the five-member board of 
     directors of the FDIC. The director of OTS is automatically a 
     member of the FDIC board.
       Because its insurance is mandatory under federal statutes, 
     the FDICs revenues are undistinguishable from ordinary taxes. 
     In court it maintained that it was separate from the 
     congressional appropriations process, except for some tens of 
     billions of dollars it used to pay its insurance losses in 
     the eighties.
     8. Manipulation of the Legal Process.
       The report furthers a misrepresentation to the court. The 
     FDIC has represented to the court that the Office of Thrift 
     Supervision is proceeding entirely separately from this case. 
     The FDIC never disclosed that it had actually hired the OTS 
     to front for it in attacking Hurwitz administratively.
       In November of 1996 the FDIC was telling this court that 
     the proceedings were entirely separate, even to the point of 
     trying not to admit that the director of the OTS sits on the 
     FDIC's board. In August, the FDIC's chairman had reported to 
     a congressman: ``We are coordinating the investigation and 
     our claims against Mr. Hurwitz with the Office of Thrift 
     Supervision.''
       Not disclosing the report at this juncture would be 
     allowing the FDIC to attempt fraud and, when it fails, to 
     hide behind a privilege earned by responsible conduct.
       The FDIC asked this court to have another judge examine the 
     report so that it would not prejudice this court in the 
     progress of this action. For eight years the FDIC has been 
     ``studying'' this complex transaction, and it would like a 
     judge not familiar with it at all to examine the report. That 
     is a transparent dodge. Will the contents of the FDIC report 
     bias the court? A conclusion reached on an impartial 
     consideration of the facts is not prejudice. The FDIC--no 
     less than other litigants--does not get the option to 
     misbehave until caught and then ask for a clean slate 
     elsewhere. A Freudian would say that the FDIC is projecting 
     in its concern about tainted process.
     9. The Board Resolves.
       After the report was presented to the board of directors of 
     the FDIC, the board adopted the report as its resolution. The 
     board resolution served to authorize this lawsuit. The board 
     could have authorized legal action against Hurwitz by a 
     separately written resolution; and that resolution would have 
     needed to contain no attorney's advice, but the board chose 
     the expedient of adopting as its resolution the whole text of 
     the report, making it a formal statement of public policy.
       While the board may not have intended that Hurwitz or the 
     public know of its decision in this form, its practices made 
     its staff legal advice into an operating document, totally 
     unprivileged. The resolution is not a client asking for legal 
     advice nor an attorney giving advice, rather it is the 
     embodiment of a governmental agency's final decision about 
     public business.
       An analogy: A report of advice from the general counsel of 
     the senate foreign relations committee to its chairman may be 
     privileged, but if the committee adopts the report as its 
     resolution, no privilege survives. This report is like one 
     that was written jointly by the architect of the capitol and 
     committee counsel and then was adopted by the public works 
     committee.

                                  ____
                                  

                               Document B

  Confidential Attorney/Client Privileged Communications--Report and 
   Litigation Recommendations on Director, Officer and Professional 
Liability Claims Arising Out of the United Savings Association of Texas 
                              Receivership

  [Prepared by: Brill, Sinex & Stephenson, a Professional Corporation]


                      I. BACKGROUND OF INSTITUTION

       United Savings of Texas (``USAT'') was closed on Friday, 
     December 30, 1988, upon the determination by the Federal Home 
     Loan Bank Board that the institution was insolvent and had 
     engaged in unsafe and unsound lending practices. The 
     institution failed as a result of excessive growth, 
     substandard underwriting practices and internal controls; 
     poor investment strategies and portfolio management regarding 
     the mortgage-backed securities portfolio; the failure of 
     USAT's holding company, United Financial Group, Inc., to 
     maintain sufficient minimum regulatory capital in USAT; and 
     the severe economic slump in the Houston/Galveston area.
       USAT was a state chartered, federally insured savings 
     association located in Houston, Texas. The association was a 
     wholly owned subsidiary of a savings and loan holding company 
     called United Financial Group, Inc. (``UFGI''). UFGI's 
     principal shareholders were corporations controlled by 
     Charles Hurwitz, who has a national reputation as a 
     ``corporate raider.'' UFGI and USAT were managed by virtually 
     the same core group of individuals.
       From 1983-1986, as the oil industry declined and the value 
     of real estate in the Houston market slipped, USAT changed 
     its income strategy from traditional real estate based 
     lending to high profile investments in real estate and 
     different types of securities and venture capital projects. 
     In addition, USAT attempted to diversify its real estate 
     portfolio into other areas of Texas (for example, San 
     Antonio, Austin and Fort Worth).
       At October 31, 1988, USAT reported negative capital of 
     $272,791,000. At September 30, 1988, USAT reported assets of 
     $4,646,240,000, and total liabilities of $4,849,373,000. An 
     initial review indicates that since June 30, 1987, there had 
     been a market loss in the MBS portfolio of $213,000,000. In 
     addition, the estimated commercial real estate loan losses 
     exceeded $500,000,000. Demand was made by the supervisory 
     agent upon UFGI to honor its agreement to maintain the 
     regulatory net worth of USAT; however, no new capital 
     infusion was made.
     Ownership of USAT
       On the date it was closed, USAT was solely-owned by UFGI. 
     According to the UFGI stock records, dated September 9, 1988, 
     UFGI was owned by: (1) Cede & Co. (42.3%); (2) Hurwitz-
     controlled entities (23.29%); and (3) Drexel (9.7%). The 
     Hurwitz-controlled entities consisted of Federated 
     Development Company (``Federated''), MCO Holdings (``MCO'') 
     and Maxxam Group, Inc.

[[Page E2428]]

     (``Maxxam''). These three organizations, as well as Pacific 
     Lumber, KaiserTech and many others, comprised Hurwitz's 
     domain. The following are brief descriptions of the primary 
     businesses.
       MCO held a controlling interest of approximately 45.7% of 
     the outstanding voting stock of Maxxam, according to its 10-K 
     filing for the year ended December 31, 1987. Maxxam owned 
     approximately 13.5% of the outstanding Common Stock and 
     approximately 93.5% of the outstanding Series D Convertible 
     Preferred Stock of UFGI. On March 21, 1988, MCO stockholders 
     approved the merger of MCO with Maxxam. Maxxam is involved in 
     forest products operations, real estate management and 
     development, and aluminum products.
       Federated, a New York business trust, owned approximately 
     9.8% of the outstanding shares of UFGI. It is solely-owned by 
     Hurwitz and certain members of his immediate family and 
     trusts for the benefit thereof. Federated owned approximately 
     28.2% of MCO's Common Stock and 91.3% of its Class A 
     Preferred Stock.
     Acquisition of UFGI by Hurwitz and Creation of USAT
       USAT was chartered in 1937 as the Mutual Building and Loan 
     Association, Fort Worth, Texas. In 1946, it became the Mutual 
     Savings and Loan Association. The association was acquired in 
     1970 by Southwestern Group Financial, Inc., a wholly-owned 
     subsidiary of Kaneb Services, Inc. In 1978, five savings and 
     loan subsidiaries of Southwestern Financial Group, Inc. 
     merged to form United Savings Association of Texas. In 1981, 
     Southwestern Financial Group, Inc. changed its name to United 
     Financial Group, Inc. That same year, Kaneb spun off UFGI by 
     distributing its shares to the holders of its common stock.
       Hurwitz began his acquisition in 1982, as reflected by the 
     Joint Proxy Statement and Prospectus, dated March 24, 1983. 
     Federated Reinsurance Corporation, an insurance company 
     licensed under the laws of the State of New York, and 
     Federated Development Company, a New York business trust, 
     filed a joint 13-D statement reporting ownership of more than 
     5% of the outstanding shares of UFGI Common. On February 18, 
     1982, PennCorp (the previous parent of First American 
     Financial of Texas) distributed 2.4 million shares of First 
     American Common to its stockholders, in accordance with a 
     special dividend. The remaining 20%, 603,448 shares, was 
     deposited by PennCorp in trust, in connection with a 10-year 
     warrant to purchase the common stock of PennCorp issued to 
     Great American Insurance Company. The Merger Agreement and 
     the Modification Agreement between the parties were executed 
     on August 27, 1982. 13-D amendments filed by Federated, on 
     December 10, 1982, state that it held approximately 53.8% of 
     the MCO Holdings, Inc. total voting power. Federated, MCO and 
     ``certain others'' filed a 13-D amendment to increase their 
     UFGI ownership to 19.25%. Approximately one week later, MCO 
     and American Financial Corporation executed a purchase and 
     sale agreement which set forth the purchase by MCO of 603,448 
     shares of First American from American Financial Corporation. 
     The Merger Agreement and the Modification Agreement were 
     amended on January 10, 1983.
       From November 23, 1982, until March 4, 1983, MCO Holdings 
     acquired 60,200 shares of First American Common on the open 
     market. At the same time, American Financial Corporation 
     owned 20.18% of First American Common. Ten days later, 
     according to an agreement of purchase and sale dated December 
     27, 1982, MCO Holdings purchased 603,448 shares of First 
     American from American Financial Corporation.
       By Bank Board Resolution 83-252, dated April 29, 1983, 
     approval was given to merge First American Financial of Texas 
     into UFGI and merge their subsidiary savings associations 
     into USAT. This approval was conditioned on UFGI stipulating 
     to maintain the regulatory net worth of USAT.
     Sale of Branches to Independent American
       In 1984, USAT sold several branches to Independent American 
     Savings. When Independent American purchased the branches, it 
     assumed liabilities of $1 billion in deposits. In order for 
     Independent American to do so, USAT issued cash flow bonds in 
     five series, labeled A-E, with coupon rates at 10%. Since the 
     market price was at a yield of 15%, the spread between the 
     two was a ``paper gain'' in fair market value. Although the 
     gain was in paper, it had time value. The total ``paper 
     gain'' was $90 million. The bonds were collateralized by 
     mortgages. As mortgages under the bond paid down, the 
     proceeds of the collateral were paid to the bond.
       Following the branch sale to Independent American and the 
     booking of the paper gain, a $32 million dividend payment was 
     made to UFGI. The regulators approved a dividend for a 
     certain percent of the amount, if the institution was 
     profitable. The dividend was maintained in an USAT 
     certificate of deposit.
     Change in Real Estate Investment Strategy and Start-Up of 
         Securities Trading Activity
       It is apparent that United changed directions in 1982 after 
     it was acquired through a purchase of its holding company, 
     UFGI, by Charles Hurwitz and his related corporations. Prior 
     to that time, United was a traditional savings association 
     making residential and commercial real estate loans, 
     primarily in the Houston market. In an attempt to remedy the 
     problems caused by the Texas real estate depression and cope 
     with the pressures of deregulation and interest rate 
     fluctuation, the association changed its lending policies and 
     began investing in securities. In hindsight, it appears that 
     United's staff was not equipped for a transition from the 
     lending activity of a traditional savings and loan under a 
     regulated industry to a deregulated industry, utilizing high 
     profile commercial lending and securities investments.
       David Graham and Gem Childress are examples of this 
     situation. Both were highly respected by the United staff and 
     the thrift industry and had extensive experience in 
     commercial real estate lending. Each held the position of 
     executive vice-president in charge of real estate lending at 
     the time of their departure in July, 1987. A new lending 
     policy was created in 1983 directed toward high profile, 
     glamorous commercial loan transactions, together with 
     sophisticated securities investments. Some of the individuals 
     who fit this high profile image were Jenard Gross, Mel Blum 
     and Stanley Rosenberg. Employees like David Graham and Gem 
     Childress who were oriented toward traditional saving and 
     loan real estate lending were eventually terminated.
       While Jenard Gross was considered a part of the high 
     profile group, his knowledge of commercial real estate and 
     his reputation with United staff was very high. He was a real 
     estate developer, but appeared to be well respected by all 
     who came in contact with him.
       The high profile direction apparently led United into 
     lending or investment relationships with which it was 
     unfamiliar and not qualified internally to deal with. This is 
     true in regard to loans or investments outside the Houston 
     market. For example, United's staff relied on contacts such 
     as Stanley Rosenberg, apparently a close friend of Charles 
     Hurwitz, for development loans in San Antonio, Texas.
       United, its subsidiaries, and its parent, UFGI, were 
     apparently run by a small core group of individuals who 
     participated in all activities. For example, it appears that 
     the senior commercial loan staff was not included in the 
     overall planning or direction of United. Once policy was 
     made, the staff merely presented for approval applications 
     that they felt had merit to the senior loan committee and 
     ultimately the board of directors. Senior lending employees 
     did not appear to have any real insight as to the overall 
     direction of United or its serious financial condition. 
     However, the core group, including Berner, Gross, Crow and 
     Hurwitz, had knowledge of United's serious financial 
     difficulties but continued to approve large commercial 
     transactions in an attempt to generate new income form 
     riskier loans.
       United was in a relatively strong financial condition at 
     the end of 1984. Total assets of the association were $3.9 
     billion, most of which consisted of single family residential 
     home loans and a portfolio of construction and consumer loans 
     of approximately $450 million. Liabilities consisted of 
     branch deposits of $2.3 billion and reverse repos of $59 
     million. Investment activities were confined to treasuries 
     and a small mortgage-backed securities (``MBS'') portfolio. 
     At the time, in part because of real estate losses, emphasis 
     shifted from real estate loans to securities investments. The 
     various securities activities included equity arbitrage, 
     high-yield securities (``junk bonds'') and MBS. Each of the 
     portfolios is discussed in more detail in the following 
     discussion.
     High Yield Securities
       Since its inception in 1985, the high yield securities area 
     had four portfolio managers. Originally the portfolio was 
     managed by Joe Phillips and Ron Huebsch. Subsequently, the 
     program was managed by Terry Dorsey, then Eugene Stodart. 
     Junk bonds were executed in United's account(s), with a small 
     portfolio of warrants held by United Financial Corporation 
     (``UFC''). Commercial bonds are debt instruments and were 
     carried as commercial loans. Therefore, USAT could invest 
     directly in junk bonds, but equity securities had to be held 
     by its subsidiary, UFC. The portfolio was generally limited 
     by policy to 11% of the total assets of United, 10% of which 
     were included in the commercial loan section. The portfolio 
     was not hedged with options because 70%-75% were fixed 
     assets. The USAT liquidity investments, which generally 
     consisted of government securities, were also handled by 
     Stodart.
       Our review has indicated that the junk bond department 
     carried a modest net profit on the securities it traded. 
     Because USAT booked the bonds at cost, the actual value of 
     the bonds, which would vary from day to day, was not 
     reflected. The estimated unrealized losses for 1987 were 
     $47.9 million. Our focus has been on the trading strategies, 
     the theft of corporate opportunities, and the possibility of 
     insider trading and stock manipulation.
     Equity Arbitrage
       The equity arbitrage area was managed from inception in 
     1985 through January 6, 1989 by Ron Huebsch. The trading 
     strategy involved the purchase of stock in a corporation 
     which was undergoing a merger, acquisition, or tender offer. 
     Profit or loss was based on the market movement or sale of 
     the securities. The portfolio consisted of 95%-97% cash and 
     3%-5% preferred securities, debentures or debt securities. 
     Our review has shown that equity arbitrage activities were 
     profitable for 1985 and 1986, 2.5% and 5.7% respectively. 
     Although equities profited in 1987, the ``market crash'' in 
     October resulted in a $75 million loss over a two day period. 
     Because of the profit prior to October, the

[[Page E2429]]

     overall net profit or loss for the year was even. While the 
     equity trading was profitable, our reconstruction of equity 
     transactions in 1987 show an additional $26.5 million in 
     unrealized losses.
     Mortgage-Backed Securities
       Aside from the small portfolio previously held, MBS 
     activity was initiated approximately in early 1985 by United. 
     UMBS was formed in 1987. The MBS portfolio had three managers 
     since inception. Joe Phillips managed the portfolio 
     originally and was replaced by Sandra Laurenson around 
     October 1986. Laurenson resigned prior to February 1988 and 
     was replaced by Dominic Bruno who resigned in January 
     1989.
       Our review to date indicates that two basic MBS phases 
     occurred. The initial program was initiated in 1985. United 
     purchased MBS for use assets and borrowed the funds from 
     various broker/dealers (reverse repos) to finance the 
     securities using the same securities as collateral. The 
     spread between the MBS and the reverse repos was 
     approximately 200 basis points. The maturity of the short-
     term financing was extended through interest rate swaps and 
     ``dollar rolls.'' When interest rates fell, the securities 
     with higher coupon rates were sold which resulted in a 
     profit. However, when the money realized from the sale of 
     those securities was reinvested, the new securities yielded a 
     lower rate while the cost of funds remained fixed. Thus, the 
     spread was reduced or eliminated dramatically. Regular 
     accounting did not require an adjustment of value of the 
     securities to market and the securities were carried on the 
     books at cost. Therefore, unrealized losses existed as the 
     value of the securities fell. The unrealized loss at that 
     time, based on the market value of the MBS portfolio and 
     hedges, was in excess of $200 million.
       In early 1987, the second phase of trading began, which was 
     called risk control arbitrage (``RCA''). RCA is a growth, 
     leveraging strategy which consists of purchasing MBS and its 
     derivatives financed by short-tern liabilities, unusually 
     reverse repos or dollar rolls. Since an interest rate risk 
     exits between the long-term MBS and the short-term financing, 
     hedges in financial futures, financial options, interest rate 
     swaps, caps, collars and repos are utilized.
       When interest rates declined in the initial phase described 
     above, the association realized a profit on the assets over 
     the cost of short-term funding. However, when interest rates 
     increased, the association did not realize the losses. In 
     addition, the risk of the lower coupon rate MBSs was not 
     adequately hedged. Without discussing in detail each of the 
     securities and financing types and how each related to the 
     portfolio, the total unrealized loss at year-end for 1988 was 
     in excess of $300 million.


                    II. description of investigation

     A. Scope of Investigation
       The investigation of USAT began on December 31, 1988 with 
     Hutcheson & Grundy (``H&G'') and Brill, Sinex & Stephenson 
     (``BS&S'') acting as joint fee counsel on behalf of FSLIC. 
     Brill, Sinex & Stephnson conducted the investigation arising 
     out of commercial loan transactions, joint ventures and 
     professional liability such as attorneys, accountants and 
     appraisers. H&G investigated directors and officers liability 
     issues arising out of securities transactions, including 
     mortgage-backed securities and junk bond acquisitions by 
     USAT.
       The bulk of the investigation performed by H&G and BS&S was 
     conducted in the first half of 1989. Thirty, sixty and 
     ninety-day snapshot reports were issued by H&G and BS&S 
     updating FSLIC on the status of the investigation. The 
     preliminary conclusion from the initial investigation as to 
     officers', directors', and other professionals' liability was 
     that there did not appear to be any intentional fraud, gross 
     negligence, or patterns of self-dealing. The most serious 
     criticism of the officers and directors, in general, was that 
     they exercised poor business judgment and were negligent in 
     the management of the institution.
       After mid-1989, several investigations have done forward on 
     a case-by-case basis, and in some instances, litigation was 
     initiated. The separately-handled matters, which will not be 
     addressed in detail in his report, include: the Chapel Creek 
     Ranch litigation, on the investigation of auditors and 
     attorneys arising out of the Couch Mortgage transactions, 
     litigation relating to the executive employee bonus plans, 
     the dispute regarding UFGI's obligation to maintain the 
     regulatory net worth of USAT, and the inter-company 
     receivable due to USAT by UFGI on account of a tax refund.
       The following is a summary of the work done by H&G and BS&S 
     in conducting the professional liability investigtin of USAT.
       In the initial investigation, we completed the review of 
     offices and the control of files and documents of the 
     association. In addition, an initial review of criticized 
     loan and investment transactions was completed. We reviewed 
     all relevant exam reports and supervising or correspondence, 
     including the examination dated January 19, 1989 from the 
     10th District Examiners. We analyzed all board, executive, 
     loan, and investment committee minutes. To the extent that 
     other committees were pertinent, those minutes were reviewed. 
     We interviewed all officers of the association down to the 
     senior vice president level and two of the directors. Because 
     of the potential litigation with UFGI, other directors have 
     not consented to an interview. We also interviewed the 
     supervisory agent, examiners, internal auditors and a variety 
     of other United Savings employees. In addition, we met with 
     the former attorneys for the association. These firms, Mayor, 
     Day & Caldwell, and Schlanger, Cook, Cohn, Mills & Grossberg, 
     were generally cooperative in all matters.
       We inventoried over 400 lawsuits filed against United 
     Savings and intervened on behalf of the FSLIC in lawsuits 
     where appropriate. Where actions were not filed in federal 
     court, we removed those cases. In each case, we prepared 
     motions to dismiss and for summary judgment and have now 
     achieved dismissal in almost all those cases. We also 
     reviewed the allegations in the various lawsuits to determine 
     if any issues were raised that would reflect on 
     professional liability. We did not discover any issues 
     that appeared to have substantial factual support.
       The association had a fidelity bond policy issued by 
     Victoria Insurance Company (``Victoria''). However, the 
     association did not have an errors and omissions policy at 
     the time of closing. As we have previously advised, the 
     fidelity bond was subject to an indemnity agreement between 
     the association and Victoria secured by a letter of credit at 
     the Federal Home Loan Bank--Dallas. Thus, no third party 
     coverage existed and we recommended the execution of a mutual 
     release with Victoria. This release has been executed by the 
     FSLIC and Victoria and the letter of credit at the Federal 
     Home Loan Bank--Dallas securing the indemnity agreement has 
     expired.
       We have investigated the outside auditor for United 
     Savings, the national accounting firm of Peat, Marwick & Main 
     (``PM&M''). PM&M, formerly known as Peat, Marwick & Mitchell, 
     had audited United Savings' financial statements from 
     December 31, 1981 through December 31, 1987. We interviewed 
     various individuals in connection with that investigation. In 
     addition, we reviewed certain portions of PM&M's work papers 
     for their audits of United Savings' financial statements for 
     the periods December 31, 1983 through December 31, 1986, as 
     well as selected audit plans of PM&M for those years. We also 
     obtained and reviewed an investigative report conducted by 
     the trustee for Couch Mortgage Company; and, to a lesser 
     extent, we reviewed certain work papers of the national 
     accounting firm of Ernest & Whinney (``E&W''), the 
     independent auditors for Couch Mortgage Company. The results 
     of our investigation of the auditors are contained in a 
     report submitted to the FDIC on September 20, 1991.
     FDIC Drexel Task Force
       In the fall of 1989, we noted a pattern of activity in the 
     investment area of USAT. This pattern involved the potential 
     use of USAT by Hurwitz and Milken/Drexel as part of a 
     network. On December 19, 1989, we wrote to Thomas Loughran at 
     Finkelstein, Thompson and Lewis and Marta Berkley regarding 
     this matter. At that time, we provided Loughran with various 
     initial organizational documents including: (1) Pacific 
     Lumber initial debt securities purchasers; (2) high-yield 
     securities portfolio review of unrealized losses as of 
     September 19, 1988; (3) directors and officers timeline; and 
     (4) USAT chronology.
       In September, 1990, we were contacted by the FDIC Drexel 
     Task Force regarding the securities activity at USAT. Our 
     initial meeting was with Frank Sulger, Gari Powder and Bill 
     Carpenter of Thacher, Proffitt and Wood, Gary Maxwell of 
     Kenneth Leventhal and Company, and Jamey Basham of the FDIC. 
     During the meeting we discussed the possible ponzi scheme, 
     the daisy chain network, and the ``grand conspiracy'' 
     pertaining to the use of financial institutions by the 
     corporate raiders. We also supplied the Task Force with the 
     following: (1) expanded selected names mention list; (2) 
     Drexel Burnham Lambert deal manager products charts; (3) 1986 
     and 1987 securities portfolio reconstruction charts and the 
     related securities portfolio listings for 1986-1988; (4) 
     possible quid pro quo analysis of Pacific Lumber note 
     purchasers; (5) high-yield securities portfolio review of 
     unrealized losses as of September 19, 1988; (6) high-yield 
     securities purchase recommendation review; (7) interview 
     recaps for Russell McCann, Eugene R. Stodart and Mary Mims; 
     (8) materials regarding Transcontinental Services Group/TSG 
     Holdings, Inc.; and (9) a memorandum regarding the credits 
     chosen for sale in the autumn sales program. Subsequent to 
     the meeting, the following items were given to Jamey Basham: 
     UFGI ownership interests breakdown and chart, directories of 
     USAT files, and a list of files removed from USAT by Berner.
       In October, 1990, we were contacted by Cravath, Swaine and 
     Moore. We discussed with Julie North and Veronica Lewis the 
     same issues discussed in our earlier meeting in September. At 
     this time, we provided photocopies of the exhibits to the 
     USAT ``S'' memorandum. We also sent Cravath photocopies of 
     the original documents produced to the Task Force in 
     September. Additional documents provided to the Task Force 
     include: Art Berner biography; a memorandum to Connell and 
     Crow regarding the reasons for certain credits chosen for the 
     autumn sales program; interview recaps for all of the 
     officers/directors interviewed; Charles Hurwitz and related 
     entities flow chart; review of certain UFGI shareholders; 
     UFGI ownership interests; joint proxy statement--UFGI and 
     First American Financial of Texas, Inc.; UFGI proxy statement 
     excerpts, dated March 31, 1987; MCO Holdings, Inc. 1986

[[Page E2430]]

     10-K excerpts; chronology of UFGI--First American merger; 
     several newspaper articles; interview recaps pertaining to 
     the January 12, 1989, interview of Brenda Bese, Michael Cline 
     and Diane Buckshnis (FHLB-Seattle); Leonard Lepedis report; 
     consent agreement, dated November 7, 1988; Caywood-Christian 
     document evidencing the establishment of a managed account; 
     high-yield and MBS speed call lists; consultant records 
     pertaining to Walter Muller; MCO Holdings, Inc. and Maxxam 
     Group, Inc. excerpts dated February 12, 1987; Drexel 
     ownership interests information; minutes of the meetings of 
     the board of directors of USAT for June 29, 1983, January 25, 
     1984, August 29, 1984, May 16, 1985, August 15, 1985 and 
     February 19, 1987; Securities Market Oversight and Drexel 
     Burnham hearings before The Subcommittee on Oversight and 
     Investigations of the Committee on Energy and Commerce, House 
     of Representatives, April 27-28, 1988; summary of minutes of 
     the meetings of the executive committee of UFGI 1987-1988; 
     summary of minutes of the meetings of the executive committee 
     of the board of directors of USAT 1984-1988; summary of the 
     minutes of the meetings of the board of directors of UFC 
     1983-1988; summary of the meetings of the board of directors 
     of USAT 1983-1987; summary of the minutes of the meetings of 
     the board of directors of UFGI 1985-1987; Corporate 
     Takeovers, hearings before The Subcommittee on Oversight 
     and Investigations of The Committee on Energy and 
     Commerce, House of Representatives, October 5, 1987; 
     Maxxam's answers to questions raised by The Subcommittee 
     on Oversight and Investigations, appendix A; documents 
     entered into the record by The Subcommittee on Oversight 
     and Investigations, appendix B; and possible quid pro quo 
     and Drexel/Milken connection analysis chart.
     FDIC Directors and Officers Investigation Unit-Dallas
       In May, 1990, we provided Floyd Robinson a set of the 
     original organizational charts pertaining to the securities 
     transactions at USAT. These documents included: selected 
     names mentioned list; materials involving Transcontinental 
     Services Group; possible quid pro quo analysis of Pacific 
     Lumber note purchasers; high-yield securities portfolio 
     review of unrealized losses as of September 19, 1988; USAT 
     and related entities securities transactions reconstructions; 
     and Drexel deal-manager products charts.
       In October, 1990, we were contacted by Richard Boehme 
     regarding the USAT D&O investigation being conducted at the 
     FDIC in Dallas. We produced to Mr. Boehme the same documents 
     which were originally produced to the Drexel task force. In 
     addition, we sent the asset review reports, USAT snapshot 
     investigation reports dated January 31, 1989, March 17, 1989, 
     and April 10, 1989, and correspondence, dated September 19, 
     1989, to Thomas J. Loughran.
       The following documents have also been sent to the 
     investigative unit at the FDIC: possible quid pro quo and 
     Drexel/Milken connection analysis chart (sent to Richard 
     Boehme); inventories of the original and photocopied 
     corporate USAT documents located in our office and in off-
     site storage (sent to Bruce Dorsey); a revised expanded 
     selected names mentioned list (sent to Mike Wysocki); USAT 
     snapshot investigation reports dated January 31, 1989, and 
     March 17, 1989, correspondence, dated December 19, 1989, to 
     Thomas Loughran, correspondence, dated December 19, 1989, to 
     Marta Berkley, correspondence and report on potential 
     auditor's claim arising out of the USAT receivership, dated 
     July 11, 1989, prepared by Brill, Sinex and Hohmann, ``S'' 
     memorandum recommendation, USAT/UFGI time line, segregated 
     time lines for United MBS Corporation, United Capital 
     Management Corporation, United Financial Group Inc., United 
     Financial Corporation and USAT; and memoranda, dated January 
     24, 1989 and March 7, 1989, from Ami Hohmann regarding 
     utilization of the time lines (sent to Gene Golman).
       We have also been contacted by Sandra Northern at the FDIC 
     in Washington who requested and received copies of the 
     following documents: UFGI ownership interests, Hurwitz-
     related entities flow-chart, Hurwitz asset search report, and 
     excerpts from the Columbia Savings and Loan Complaint, dated 
     December 12, 1990, evidencing allegations relating to Hurwitz 
     and USAT.
     B. Completion of the Investigation
       In April 1991, the FDIC attorney-in-charge of the 
     professional liability investigation, Robert J. DeHenzel, Jr. 
     requested that we complete the investigation and provide a 
     written report and litigation recommendations. In completing 
     the investigation, we conducted several more interviews, 
     including the former Vice-President and General Counsel of 
     USAT and UFGI, Arthur Berner. We also completed the analysis 
     of the commercial loan and joint venture transactions, most 
     notably by obtaining title company documents on the Park 410 
     loan transaction. We then reviewed, analyzed and coordinated 
     all data obtained from the earlier investigation to the 
     present. Finally, H&G and BS&S attorneys met to coordinate 
     the results of their respective portions of the investigation 
     and to reach a consensus on conclusions and recommendations.


                                  III.

     A. Applicable Standards CLAIMS AGAINST OFFICERS AND DIRECTORS
       The standards applicable to the directors of USAT require a 
     showing of gross negligence or worse, a breach of fiduciary 
     duty, violation of statutory duty, or the receipt of an 
     unlawful benefit. The officers are held to the ordinary 
     corporate duty of care and loyalty. Section 212(k) of FIRREA 
     (18 U.S.C. 1821(k)) provides that a director or officer of an 
     institution may be held personally liable for damages for 
     ``gross negligence, including any similar conduct or conduct 
     that demonstrates a greater disregard of a duty of care (than 
     gross negligence), including intentional tortuous conduct, as 
     such terms are defined and determined under applicable State 
     law. Nothing in this paragraph shall impair or affect any 
     right of the Corporation under other applicable law.''
       Under FIRREA, therefore, an officer or director is liable 
     for those standards imposed by the common law of the 
     applicable jurisdiction, or in the absence of a higher 
     standard, gross negligence or worse conduct as defined by 
     state law. The Supreme Court of Texas defines gross 
     negligence as ``that entire want of care which would raise 
     the belief that the act or omission complained of was the 
     result of a conscious indifference to the right or welfare of 
     the person or persons to be affected by it.'' Williams v. 
     Steves Industries, Inc., 699 S.W.2d 570, 572 (Tex. 1985), 
     quoting, Burk Royalty Co. v. Walls, 616 S.W.2d 911 920 (Tex. 
     1981). the court went on to say that
       ``[The] plaintiff may prove a defendant's gross negligence 
     by proving that the defendant had actual subjective knowledge 
     that his conduct created an extreme degree of risk. In 
     addition, a plaintiff may objectively prove a defendant's 
     gross negligence by proving that under the surrounding 
     circumstances a reasonable person would have realized 
     that his conduct created an extreme degree of risk to the 
     safety of others.'' Id. at 573.
       Effective August 31, 1987, Texas adopted a statute allowing 
     an institution organized under the Texas Savings and Loan 
     Act, Article 852a of the Texas Revised Civil Statutes, to 
     limit the liability of directors. That statute, Tex. Rev. 
     Civ. Stat. Ann. art. 1302-7.06B (Vernon Supp. 1991), 
     provides:
       ``The articles of incorporation of a corporation may 
     provide that a director of the corporation shall not be 
     liable, or shall be liable only to the extent provided in the 
     articles of incorporation, to the corporation or its 
     shareholders or members for monetary damages for an act or 
     omission in the director's capacity as a director, except 
     that this article does not authorize the elimination or 
     limitation of the liability of a director to the extent the 
     director is found liable for:
       ``(1) a breach of the director's duty of loyalty to the 
     corporation or its shareholders or members;
       ``(2) an act or omission not in good faith that constitutes 
     a breach of duty of the director to the corporation or an act 
     or omission that involves intentional misconduct or a knowing 
     violation of the law;
       ``(3) a transaction from which the director received an 
     improper benefit, whether or not the benefit resulted from an 
     action taken within the scope of the director's office; or
       ``(4) and act or omission for which the liability of a 
     director is expressly provided by an applicable statute.''
       In February, 1988, USAT, a Texas chartered savings and 
     loan, amended its Articles of Association to track the 
     statute in large part and provide that:
       ``No director of this Association shall be liable to the 
     Association or its shareholders or members for monetary 
     damages for an act or omission in such director's capacity as 
     a director except for the acts or omissions set forth below:
       ``1. A breach of the director's duty of loyalty to the 
     Association or its shareholders or members;
       ``2. An act or omission not in good faith or that involves 
     intentional misconduct or a knowing violation of the law;
       ``3. A transaction from which the director received an 
     improper benefit, whether or not the benefit resulted from an 
     action taken within the scope of the director's office;
       ``4. An act or omission for which the liability of the 
     director is expressly provided for by statute; or
       ``5. An act related to an unlawful stock repurchase or 
     payment of a dividend.
       ``If the Texas Miscellaneous Corporation Laws Act or other 
     applicable law (herein collectively referred to as the 
     ``Act''), hereinafter is amended to authorize the further 
     elimination or limitation of the liability of directors, then 
     the liability of a director of the Association, in addition 
     to the limitation on personal liability provided herein, 
     shall be limited to the fullest extent permitted by the Act 
     as so amended. No amendment to or repeal of this Article 
     EIGHTH shall apply to or have any effect on the liability or 
     alleged liability of any director of the Association for or 
     with respect to any acts or omissions of such director 
     occurring prior to such amendment or repeal.''
       We found no Texas case law addressing the applicability of 
     this statutory liability limitation provision. However, the 
     utilization of the statute by directors who may be the 
     targets of claims is clearly contemplated by the statute. In 
     its original enactment, the 1987 statute stated that the 
     limitation did not apply to acts or omissions occurring 
     before the effective date of the Act. Accordingly, it could 
     be argued that the liability of the directors of USAT is not 
     limited as to acts occurring either before the effective date 
     of the statute (August 31, 1987), or even before the date 
     that USAT amended its Articles to incorporate the limitations 
     (February 1988).
       The standards applicable to officers continue to include 
     good faith and prudence in

[[Page E2431]]

     the performance of their duties which must be carried out 
     with ordinary care and diligence, First State Bank v. 
     Metropolitan Casualty Ins. Co., 79 S.W.2d 835, 839 (Tex. 
     1935), and which may not be delegated to strangers. Brand v. 
     Fernandez, 91 S.W.2d 932, 939 (Tex. Civ. App.--San Antonio 
     1935, writ dism'd).
       In summary, while officers are held to an ordinary standard 
     of reasonable care, it could be argued that a claim against a 
     director must allege at least gross negligence or breach of 
     fiduciary duty (duty of loyalty), self-dealing (receipt of 
     improper benefit), or violation of a statutory duty.
       The defenses commonly raised in actions against directors 
     and officers are application of the business judgment rule, 
     reliance on counsel or consultants or management, lack of 
     causation, contributory negligence, or failure to mitigate. 
     The business judgment rule, a common-law principle recognized 
     in Texas, provides that an officer must discharge his duties 
     with the care of an ordinary prudent man under similar 
     circumstances. Therefore, honest mistakes of judgment are not 
     actionable.
     B. Securities Investment and Trading
       The directors and senior officers of USAT were primarily 
     people who understood the savings and loan industry in Texas 
     when it was based on the local real estate market. After the 
     collapse of the real estate market and the refocus of the 
     institution on the securities markets, the directors and 
     officers were unprepared to meet the challenge of adequately 
     directing and supervising investments in the incredibly 
     complex and sophisticated securities available and marketed 
     to the savings and loan industry. We focused primarily on 
     those senior officers and directors who had ties to UFGI and 
     Hurwitz, including Gross, Berner, Crow, Heubsch and Munitz. 
     We also looked specifically for evidence of speculative 
     trading, theft of corporate opportunity, insider trading, and 
     stock manipulation. While we did find evidence of speculative 
     trading as outlined below, we found no direct evidence of 
     insider trading, stock manipulation or theft of corporate 
     opportunity by the officers and directors of USAT. We did 
     find evidence that Charles Hurwitz may have used USAT in 
     connection with insider trading or stock manipulation, and 
     those findings have been turned over to the appropriate task 
     force in Washington.
       Specifically, our review disclosed evidence of acts and 
     omissions which could form the basis of negligence, breach of 
     fiduciary duty or fraud claims, which are fully outlined in 
     the Interim Report on the Securities Investigation of United 
     Savings Association of Texas dated April 29, 1991. First and 
     foremost among those possible claims is the apparent 
     relinquishment of direction and control of the investment 
     policy of USAT to Charles Hurwitz, evidenced by:
       1. the statements of Mike Crow, Mike Canant, and Jeff Gray;
       2. the views of the financial world at the time;
       3. the fact that James Paulin, who established the 
     investment department at USAT, was not a USAT employee, but 
     an employee of Hurwitz controlled Federated, Inc.;
       4. the location of the securities trading area as well as 
     the offices of Mike Crow, Financial Vice President, Bruce 
     Williams and Jim Wolfe on the twenty-second floor of MCO 
     Plaza, the same floor which housed Hurwitz, the corporate 
     offices of Federated, Inc., and other Hurwitz controlled 
     entities while other upper level management was located on 
     the sixth floor of MCO and in Phoenix Tower;
       5. the employment by USAT of Hurwitz employees and 
     associates, and dual employment of certain officers and key 
     personnel by USAT and UFGI or Hurwitz controlled entities;
       6. the lack of control or supervision of the equity 
     arbitrage transactions completed by Ron Huebsch for the USAT 
     subsidiary, United Financial Corporation, and for Maxxam and 
     other Hurwitz controlled entities;
       7. the fact that the Investment Committee minutes were 
     created after the fact and were not an accurate reflection of 
     the deliberations or actions of that Committee;
       8. the fact that the Investment Committee was a joint USAT 
     and UFGI committee;
       9. the Transcontinental Services Group transaction.
       To the extent it is acknowledged at all, the officers and 
     directors justify their willingness to consult with Hurwitz 
     on the basis of Hurwitz's expertise in the securities area 
     and his status as the ultimate controlling shareholder. While 
     circumstantial evidence of this delegation is good, the 
     testimony of the witnesses will vary as to the extent of 
     Hurwitz's influence. Given the actual or perceived necessity 
     of turning from traditional investments in real estate to the 
     fast paced, more complicated securities arena and the lack of 
     expertise on the part of the directors, the fact that 
     Hurwitz, who was Chairman of the sole shareholder, was 
     allowed to fill the gap does not seem to pose an extreme 
     degree of risk to the institution or its creditors. Nor does 
     the officers' willingness to rely on available expertise of a 
     party they have every reason to believe has no conflict with 
     the institution necessarily violate the prudent man rule.
       Secondly, our review disclosed that the officers and 
     directors approved transactions designed to defeat or evade 
     safety and soundness regulations. Our investigation disclosed 
     that the officers and directors of USAT authorized and 
     directed a profit-taking strategy requiring significant 
     speculative trading, and allowed the accounting department to 
     book the securities as investment accounts rather than 
     trading accounts. Since the securities booked as investments 
     were carried at cost rather than market value, the books of 
     USAT failed to reflect the true value of USAT's assets. 
     Perhaps more importantly, the officers and directors not 
     only authorized but demanded gains trading, i.e., the 
     taking of profits in the portfolios and holding unrealized 
     losses at cost, regardless of future income stream loss, 
     to meet the capital requirements at each quarter end. 
     USAT's outside auditors, Peat Marwick & Mitchell raised 
     concerns about the amount of activity in the investment 
     account, but eventually approved the USAT accounting 
     procedures. The officers and directors have justified the 
     trading activity on the basis of the volatility of the 
     market in which they were investing. Investigation and 
     reconstruction of the trades indicate that as of 1987, 
     there were approximately $74.4 million in net unrealized 
     losses in high-yield and equity portfolios alone. 
     Obviously, as of any particular date, there would be 
     unrealized losses even in a properly managed investment 
     portfolio carried at cost on the books. Determination of 
     actual damages will require the development of an economic 
     model by an economist to determine the proper investment 
     strategy had the institution not been taking profits to 
     maintain capital requirements. In view of the consultation 
     and reliance on outside auditors, it will be hard to prove 
     gross negligence or breach of duty unless there was actual 
     fraud and we have been unable to find such evidence.
       Third, the officers and directors failed to establish and 
     follow safe and sound investment policies, failed to properly 
     institute and monitor internal controls on investments and 
     the investment department, and failed to hire and maintain 
     employees with requisite experience and knowledge to handle 
     the complex and risky investments undertaken by the 
     institution. These failures are evidenced by:
       1. The gains trading or profit taking activity conducted 
     without regard to ultimate effect on investment portfolio;
       2. Post execution approval of transactions and approval 
     without sufficient information as to beneficial owners or 
     control persons;
       3. Lack of control or supervision of trading in equity 
     arbitrage area, including daily removal of files;
       4. High turnover of employees in each securities area;
       5. Employment of inappropriate people without thrift 
     experience, such as Sandra Laurenson, a trader from Solomon 
     Brothers, to manage an investment portfolio;
       6. Failure to investigate default rate on given bonds and 
     adequately reserve for losses;
       7. Employment of advisors such as Caywood-Christian Capital 
     Management, Walter Muller, and others;
       8. Participating in risky mortgage backed securities or 
     derivative transactions without adequate capitalization or 
     funding;
       9. Retaining poor investments because sales would require 
     disclosure of losses;
       10. Failure to recognize the effect on the market of the 
     monopolies of Solomon Brothers in MBS and Drexel in junk 
     bonds;
       11. Investment by officers in companies in which USAT's 
     subsidiary, United Capital Ventures, also held interests.
       The proof indicates more than anything else that the 
     directors and senior management found themselves trying to 
     keep the institution afloat and play an entirety new ball 
     game at the same time. While the profit taking strategy is 
     well established, the directors' motivation was maintenance 
     of the institution in compliance with the capitalization 
     requirements and not self gain or violation of their duty of 
     loyalty. The business judgment rule will be the primary 
     defense to this cause of action. It will be difficult to show 
     gross negligence on the part of the directors, and the 
     efforts at control undertaken by the officers may not be far 
     from that which would have been undertaken by reasonably 
     prudent persons faced with the same volatile market.
       Finally, we found some evidence of self dealing, or 
     misappropriation of funds. Under the Texas statute, the 
     directors would be liable only for transactions which 
     resulted in ``improper benefits'' to individual directors.
       Specific directors who benefitted from questionable 
     payments included Jenard Gross, Barry Munitz and Robert Kuhn. 
     The payments each have some ostensible purpose and the totals 
     for those payments we discovered are small, amounting to 
     approximately $50,000. We do not feel this is a strong claim.
       There were also significant salary increases for officers 
     between 1987 and 1988, as well as unusually substantial bonus 
     packages. These increases and bonuses have been justified as 
     necessary to retain the officers for the benefit of the 
     institution and will be discussed later in this report.
       We also carefully reviewed the securities transactions to 
     determine if the relationship between USAT and Hurwitz and 
     UFGI resulted in the diversion of USAT opportunities 
     available to other Hurwitz entities. Although Heubsch traded 
     equities for numerous Hurwitz entities and we believe Hurwitz 
     directed certain purchases to further his takeovers, we found 
     no evidence of direct diversion of opportunities. Heubsch 
     often bought the same securities for several Hurwitz 
     companies and when there were differences, they were 
     generally related to the

[[Page E2432]]

     status of the other investments in the portfolio.
       We found that several of the officers and directors had 
     invested in the same entities as USAT's venture capital arm, 
     but there was no evidence that the benefits would have 
     otherwise accrued to USAT. Our investigation did not disclose 
     a sufficient basis for a claim of theft of corporate 
     opportunity.
       We also reviewed the relationship between the traders and 
     the securities industry to determine if there were payments, 
     prizes or rewards which could constitute commercial bribery, 
     but the few items we found were insufficient to support a 
     claim.
       In summary, the best claims against the directors and 
     officers involve their delegation of their duty to manage and 
     direct to Hurwitz, and the authorization of speculative 
     trading and accounting procedures which did not reflect the 
     true value of the institution. While it is extremely 
     difficult to evaluate these claims at this time, we believe 
     the likely percentage of success on liability issues is in 
     the 40-60% range.
     C. Compensation Arrangements
       We received the significant salary increases which the 
     officers and directors provided to the officers as well as 
     the substantial bonus arrangements. These compensation 
     arrangements are the subject of separate lawsuits and are not 
     addressed in this report except as evidence of other claims 
     which could be brought.
     D. Real Estate Transactions
       After investigating transactions which represent 85% of the 
     value involved with substandard loans, no clear trends have 
     emerged to reveal any pattern of self-dealing with respect to 
     real estate lending and joint ventures. Various federal 
     regulations were given particular scrutiny; those regulations 
     include:
       12 U.S.C. Sec. 84--Loans to a single borrower in excess of 
     15% of capital;
       12 U.S.C. Sec. 375a--Limits on loans to executive officers;
       12 U.S.C. Sec. 375b--Prohibition on preferential loans to 
     directors of subsidiaries and holding companies. Limits on 
     loans to executive officers and shareholders of 10% or more;
       12 U.S.C. Sec. 1828(j)--Prohibition on preferential loans 
     to officers and directors;
       12 CFR Sec. 563.9-3--Loans to one borrower;
       12 CFR Sec. 563.17--Safe and sound management practices;
       12 CFR Sec. 563.40--Prohibition on affiliated person from 
     receiving fees or other compensation with their procurement 
     of a loan;
       12 CFR Sec. 563.41--Places restrictions on real property 
     transactions with affiliated person; and
       12 CFR Sec. 571.7--Deals with conflicts of interests.
       The following are summaries of our investigations and 
     recommendations:
       1. Park 410. The transactions involving Mr. Stanley 
     Rosenberg were strongly criticized by the FHLB examiners, 
     particularly the Park 410 transaction in San Antonio, Texas. 
     Mr. Rosenberg is related to USAT because he is a shareholder 
     and director of MCO Holding, Inc. which owns the largest 
     single shareholder interest (13.5%) in UFG, the parent 
     company of USAT. M. Rosenberg is a close personal friend of 
     Charles Hurwitz, who is also a shareholder and director of 
     MCO Holding, Inc. and a director of UFG. Mr. Rosenberg can be 
     considered an affiliated person for purposes of conflict of 
     interests (12 CFR Sec. 571.7), unearned transactions (12 CFR 
     Sec. 563.41). It is our preliminary opinion that Mr. 
     Rosenberg would be an affiliated person who indirectly acting 
     in concert with other shareholders of UFG, the parent company 
     of USAT, controlled the election of directors of USAT. As 
     such, Mr. Rosenberg should not have received unearned fees or 
     participated in transactions in which he would have conflicts 
     of interest.
       The Park 410 loan transaction had a number of deficiencies. 
     First the loan was approved by the Senior Loan Committee of 
     USAT even thought e appraisal did not support the full $80 
     million loan amount. Second, the loan was secured by letters 
     of credit. In addition, the letters of credit were renewable 
     yearly but the note term was for five years. Thus USAT ran 
     the risk that the letter of credit would not or could not be 
     renewed in the future.
       Third, Stanley Rosenberg received $400,000 directly from 
     the USAT loan proceeds at closing as a fee for the 
     ``service'' of securing the USAT loan. The fee was not 
     disclosed in the loan application made by the borrower's 
     agent, Gulf Management Resources, Inc. In addition, the loan 
     funds a quarterly management fee ($75,000 per quarter for the 
     first three years of the loan, $50,000 per quarter in the 
     fourth year, and $37,500 per quarter in the fifth year), 
     payable to Gulf Management Resources, Inc., which in turn 
     pays Stanley Rosenberg 25% of that fee, apparently for no 
     present or future services. All of these unearned fees 
     were paid to Mr. Rosenberg in violation of 12 CFR 
     Sec. 4563.40, if Rosenberg is in fact an affiliated 
     person.
       Fourth, disbursements made at closing were not fully 
     disclosed, as there was no reconciliation of proceeds 
     disbursed directly to borrower and no discussion of 
     disbursement to C.R. McClintock of funds paid directly to 
     Alamo Savings Association by USAT. There was a very large sum 
     of money which C.R. McClintock and/or Alamo Savings and Loan 
     made from selling the land to Park 410 West Joint Venture, 
     which is difficult to tract. Also, the closing statement 
     shows the amount of $2,915 million was disbursed by the title 
     company to Park 410 West Joint Venture, the borrower, for 
     reimbursement of expenses, but it is unknown where these 
     funds then went. There are indications that Mr. Rosenberg may 
     have gotten these funds since his own limited partnership 
     agreement reflected that he had advanced $2.198 million into 
     the initial Park 410 Venture. The documents we reviewed at 
     the title company and Alamo Savings shed no further light on 
     this situation.
       Finally, in addition to an extremely deficient file on the 
     collateral and credit information on the loan, the appraisal 
     prepared by Edward Schulz for USAT failed to provide an 
     appropriate analysis of values under the three approaches, 
     violating R41b(3).
       The probability of success in respect to Mr. Rosenberg 
     being considered an affiliated person is good, but not 
     necessarily without question. Mr. Rosenberg also has a large 
     personal guaranty in respect to the Park 410 transaction with 
     USAT. A settlement proposal has been made by the borrowers to 
     FDIC to work out the Park 410 loan. At this time, it is not 
     known how much the losses will be on this loan, if any.
       2. Gateway Joint Venture. This transaction also involved 
     Stanley Rosenberg but primarily as a Guarantor for the top 
     25% of this $920,000.00 obligation. The makers on the note 
     were E. John Justenia, Gordon A. Woods and Lee R. Sandoloski, 
     Stanley Rosenberg's son-in-law.
       The appraisal of the property which was the collateral used 
     in this transaction appears to have been competently 
     researched and prepared, although slightly optimistic.
       The structure of the loan provided for a rate 1.5% over 
     prime with a 24 month term. United was granted a 15% net 
     profits interest, and it was anticipated the loan would roll 
     into a ``mini-perm'' with a five year maturity. The funding 
     of the ``mini-perm'' gave United a 40% net profits interest. 
     In November of 1988 United requested that FHLBB allow 
     refinancing of the subject note since cash-flow was below 
     projected rates for Gateway. The request was granted on 
     December 8, 1988, with the following terms:
       1. Extension of note term to January 1, 1991;
       2. Per annum interest under note to be 10.5%;
       3. Effective December 1, 1988, through December 1, 1990, 
     borrower pays only interest as it accrues;
       4. Payment of monthly installment of accrued and unpaid 
     interest in excess of 8.5% per annum may be deferred until 
     maturity; and
       5. Borrower to provide operating statements, rent rolls, 
     year-end operating statement and annual audited financial 
     statements.
       We understand from USAT that there have been no losses 
     recognized on the Gateway loan.
       3. Park 10. This loan, in the amount of $16,000,000.00 was 
     made by way of a non-revolving line of credit loan agreement 
     dated December 17, 1986. The interest rate is Texas Commerce 
     Bank's prime rate plus 1.75% with interest payments to be 
     made monthly. This loan was primarily granted to provide 
     funds for the payment of interest of outside debts. The maker 
     of the note was Park 10 Limited which is a Texas limited 
     partnership. The general partner is Park 10 Corporation which 
     is wholly owned by Neil C. Morgan. Morgan is also the limited 
     partner of Park 10 Ltd.
       Morgan executed a Continuing Limited Guaranty which 
     provides that he is personally liable to a maximum of 
     $3,000,000.00 which is declining with each monthly interest 
     repayment. As of this year, Morgan's guaranty has been 
     exhausted. park 10 Ltd. was then placed in bankruptcy with a 
     loan balance due to USAT of in excess of $16 million. 
     However, it is our understanding from USAT that Morgan is 
     making arrangements to satisfy this debt.
       Collateral on the loan is ``Park 10 Development''. The 
     repayment of the loan is based solely on the sale of this 
     collateral property.
       There does not appear to be any evidence of payments which 
     could be classified as fraudulent transfers, kickbacks, or 
     forms of disguised compensation. The substandard 
     classification of this loan was necessarily based on the 
     liberal structure of the loan, the declining limited personal 
     guarantee of the principal and the lack of a demonstrated 
     market for the collateral property as well as the uncertainty 
     of the timing and source of repayment. The the stock of 
     Yellow Cab. The transaction was apparently structured as a 
     subordinated loan with warrants using a second-tier 
     subsidiary in order to allow USAT to avoid the equity risk 
     investment and loans to affiliates rules contained in 12 
     C.F.R. Sections 563.9-8 and 563.43. Yellow Cab, at its 
     option, had the right to cause WMI to exercise its 
     warrants in payment of the $2,200,000 loan.
       The documentation does not support the concept of a 
     standard loan transaction. Yellow Cab did not have cash flow 
     sufficient to service the debt incurred in acquiring the 
     Eagle stock, no payments are required or even permitted on 
     the $2,200,000 note prior to 1990, and Yellow Cab has the 
     option to cause WMI to convert the warrants to stock at 
     Yellow Cab's option.
       The interest rate on the $2,200,000 loan was 15% per annum, 
     and no due date is specified on the note, despite a one-year 
     term which is specified in the Purchase Agreement. The stated 
     purpose of the $2,200,000, according to a memorandum in the 
     file, was to allow WMI to make an equity investment in Equus 
     Transportation, Inc., without violating the

[[Page E2433]]

     equity risk investment and loans-to-affiliates rules. Equus 
     was perceived as a candidate for an initial public offering 
     of its stock which would allow USAT the opportunity to obtain 
     a ``significantly enhanced return'' on its investment.
       Almost from inception, Yellow Cab experienced cash flow 
     problems. In order to meet additional cash flow requirements, 
     WMI loaned Equus an additional $500,000, evidenced by a 
     promissory note dated July 1987 and received warrants to 
     purchase 400,000 additional shares of Equus' common or 
     preferred stock at a purchase price of $1.25 per share. The 
     interest rate on this $500,000 loan was also 15% per annum, 
     and again, no due date was specified in the note. Equus has 
     the right to roll over principal and accrued interest on the 
     first through fourth anniversary dates and, on the fifth 
     anniversary date to the extent that WMI's exercise of the 
     additional warrants, if any, has not fully discharged the 
     $500,000 note, Equus has the right to give WMI a five-year 
     term note bearing interest at 15% per annum, principal and 
     interest of which are to be paid monthly.
       USAT's participation in the Yellow Cab transaction appears 
     to evidence poor business judgment at best and possibly gross 
     negligence. USAT performed almost no underwriting or analysis 
     on the loan and the files do not even contain a loan 
     application. USAT's obligation to loan funds to WMI was open-
     ended and USAT pledged its own assets as collateral for WMI's 
     obligation on the $4 million letter of credit. Corporate 
     formalities were not followed as all employees of WMI were 
     employed and paid by USAT.
       We did not uncover, however, any evidence of any insider 
     relationship to the transaction or any self-dealing by 
     officers and directors with respect to the transaction. USAT 
     has not yet provided us with loss figures for this 
     transaction, and the losses may not yet be fully known.
       6. Jerald Turboff Transactions. Prior to November 1985, 
     Jerald Turboff had been involved in a number of loan 
     transactions with United Savings Association of Texas which 
     appear to have been made at arm's length and did not result 
     in any losses to USAT. In November 1985, Turboff approached 
     USAT with a business proposal that resulted in four distinct 
     but related transactions. On its face, Turboff's proposal 
     appeared advantageous to both parties; however, because of 
     declining property values and Turboff's cash flow problems, 
     the transactions ultimately resulted in losses for USAT.
       The Turboff transactions are described in detail in the 
     BS&S Interim Report. We concluded there that the transactions 
     appeared to have a legitimate business purpose and that no 
     evidence of misconduct was uncovered. USAT's actual losses on 
     these transactions has not yet been determined because they 
     all involved the sale of USAT REO which it eventually got 
     back. Because these were non-income producing properties, we 
     do not believe that the aggregated losses were that 
     significant. Again, these transactions are more easily 
     criticized in hindsight as evidencing poor business judgment.
       7. Warwick Towers Venture. The Warwick Towers loans were 
     originated in 1983. An $11,840,500 loan was made by Warwick 
     Towers Venture and guaranteed by the John W. Mecom Company. 
     The Warwick Towers Venture was also the maker on an 
     additional non-recourse loan for $16,995,000. The original 
     loans were made with very poor underwriting analysis and with 
     very favorable terms to the borrower. When the project did 
     not perform as expected, USAT entered into a settlement 
     agreement with the borrower and guarantor, again with little 
     underwriting analysis. USAT released the obligations of the 
     borrower and the guarantor in exchange for an assignment of 
     units in the condominium project and an assignment of a $10 
     million promissory note payable to the New Orleans Saints. 
     Stanley Rosenberg was one of the guarantors of the $10 
     million note, but we were unable to discover any other 
     connection Mr. Rosenberg had to the transaction.
       The $10 million promissory note was paid, however, USAT 
     lost money on the sale of the condominium units. Concerns 
     have been raised regarding the unusual method by which the 
     units were marketed, involving a sale and lease-back of the 
     units by USAT. However, during the time period in which the 
     units were marketed, 1985-1986, Houston had an extremely soft 
     market for luxury high-rise condominium units.
       No wrongdoing or self-dealing was discovered in this 
     transaction, but there were several violation of 
     regulations, including 12 C.F.R. Sec. 563.17 (failure to 
     obtain appraisals prior to making the loan).
       8. North Lake (f/k/a Westgate). This was a joint venture of 
     USAT's subsidiary, UFG, and was carried on the general ledger 
     accounts. The date of the loan was August 1, 1984, and the 
     maker on the note was United Financial Corporation. Principal 
     was to be repaid when land was sold.
       The stated purpose of the joint venture was to develop 
     tracts of land totalling 272.4 acres located in the 
     northeastern portion of San Antonio, Texas. United Financial 
     Corporation was obligated to fund all principal and interest 
     in this transaction, which was originally estimated to have 
     run $7.5 million on top of $7.5 million needed to service the 
     first, second and third liens against the subject property. 
     An appraisal was prepared by Love & Duggen, M.A.I., of San 
     Antonio, Texas, and indicates that the property had a 
     ``developed'' value of $17,800,000 and an ``as-is'' value of 
     $14,840,000 as of January 13, 1987. No analysis of UFC's 
     credit was revealed in a search of the files and is unlikely 
     to exist, as UFC owns the property 100%.
       There is no collateral in the usual sense of the word, as 
     UFC owns 100% of the property. There have been no land sales 
     and therefore no repayment.
       Stanley Rosenberg, who served on the board of UFC, is a 
     partner in the law firm that performed $9,500 worth of work 
     on this project; and he is also president of Blazers, Inc., 
     the project's managing partner. The structure of this 
     transaction wherein UFC owns the property calls into play 
     restrictions on real property transactions and loans to 
     affiliated persons addressed in 12 C.F.R. Sections 563.41 and 
     43.
       9. Eagle Hollow. This loan was dated September 16, 1982, 
     and was in the principal amount of $9.7 million. The makers 
     of the note were Eagle Hollow Partners, Ltd., Walter B. Eeds, 
     David C. Hetherington, and The Greystone Group. The term of 
     the note was eight years at an interest rate of 12.75% plus 
     50% of cash flow and 50% of profits due at sale or time of 
     refinancing. The stated purpose of the loan was to provide a 
     portion of the funds necessary to refinance the acquisition 
     of real property consisting of 10.003 acres which was located 
     12 miles west of downtown Houston adjacent to Shell Oil 
     Company's facility at Dairy Ashford and Interstate 10. There 
     were to be 351 units in 21 separate buildings with 280,718 
     net rental square feet. The loan was to be non-recourse 
     except for $2.2 million that was to be guaranteed by Walter 
     B. Eeds and David C. Hetherington jointly and severally. An 
     appraisal was conducted by Edward Schuly & Company on two 
     separate occasions. On January 16, 1981, the property 
     appraised for $10 million. An April 14, 1982, the property 
     appraised for $11,500,000. An appraisal was also ordered for 
     May 1986 but was cancelled at the request of USAT.
       10. The Market at Hunting Bayou. This transaction involved 
     two separate loans, approved in February 1985, one for 
     $7,050,000, which was for the retail portion of the Market at 
     Hunting Bayou, and a $2 million loan for an adjacent tract of 
     land. Makers on the note were Larry Schulgen and the Market 
     at Hunting Bayou, Ltd. Guarantors were Larry Schulgen, Leo 
     Womack, George Gilman and Dan Sharp. The $7,050,000 loan was 
     approved for the acquisition of 12.603 acres of land and to 
     develop a shopping plaza. The $2 million loan was approved 
     for the acquisition of 13.41 acres of land and 2.4973 acres 
     of leasehold interest with the term of that lease being 99 
     years. The land and leasehold interest which were 
     collateralizing the $2 million loan were contiguous to the 
     12.603 acres previously purchased for the development of the 
     shopping plaza.
       The approval of the total loan package of $9,050,000 was 
     subject to an appraisal indicating a maximum loan-to-value 
     ratio of 80%. The original appraisal for USAT was completed 
     by Edward B. Schulz & Company on January 31, 1985. The 
     appraiser, Lot Braley, issued an opinion based on the fair 
     market value of the land and the proposed shopping complex. 
     The appraised value of the land and proposed shopping center 
     was estimated to be $11,300,000. The appraiser's report was 
     issued to USAT; and, based on that report, USAT recommended a 
     loan ratio of 80%. The total loan package of $9,050,000 was 
     proposed by the Senior Loan Committee of USAT and accepted by 
     the Market at Hunting Bayou, Ltd. The construction loan 
     checklist makes reference to the compliance with R. 41b, but 
     this is the only notation of compliance with the Regulations. 
     There was no other mention in any of the Senior Loan 
     Committee reports about the accuracy and/or adequacy of the 
     appraiser's report and compliance with the standard set down 
     in 12 C.F.R. Section 563.17-1a.
       At the time the Senior Loan Committee was anticipating an 
     amendment to the project at the Market at Hunting Bayou, it 
     requested an appraisal from Cushman & Wakefield. The 
     appraisal was completed by Paul Smith. On October 18, 1985, 
     he appraised the property and improvements to be valued at 
     $9,820,000. Based on this reduced appraisal value and the 
     increasing softness of the general retail market, the Senior 
     Loan Committee approved the proposal submitted by L. Schulgen 
     to develop the tract into sites for miscellaneous uses such 
     as restaurant pads, office, medical arts center, and to 
     establish release prices based on an allocation of the loan 
     to these proposed sites. At the time of the proposal, the 
     borrowers were negotiating the sale of a 1.15-acre restaurant 
     pad and had received interest in two additional sites.
       After the Market at Hunting Bayou filed bankruptcy on 
     August 7, 1986, the bank requested an investigation into the 
     maker and guarantor's financial standing. This investigation 
     was conducted by Pinkerton Investigation Service. The report 
     is dated November 4, 1988. Prior to the financial problems of 
     the Market at Hunting Bayou and in an attempt to keep the 
     loans viable and to give the project a chance to succeed, 
     USAT granted a $180,000 loan on January 6, 1986, to pay 
     delinquent interest on the $2 million loan and accepted a 
     $20,000 promissory to pay the origination fee on the 
     $180,000 loan. After repeated demand letters for 
     satisfaction of the debt and threatened foreclosure 
     against the properties and shopping center, USAT entered 
     into an agreement with the borrowers. There continued to 
     be problems with the loans, and letters continued to be 
     exchanged between USAT and Schulgen.
       USAT files indicate that the Market at Hunting Bayou filed 
     bankruptcy in the

[[Page E2434]]

     Southern District Bankruptcy Division in Houston. The case 
     number is 87-07584-H-11. The plan contemplates that certain 
     payments to other creditors will be made out of the cash flow 
     before distributing net revenues to United Savings. The plan 
     is unclear as to the amount of the debt that will be allowed 
     to USAT. It does not appear from the loan file that these 
     loans were related to any other loans or transactions held by 
     USAT.
       11. Woodcreek Apartments Phase II. The date of this loan is 
     shown as being June 5, 1987, with the maker on the note being 
     Woodcreek on the Bayou Phase II Apartments Partnership. There 
     were no guarantors for the note, but the nominees are the 
     general partners, Paul C. Jacobson, Allen P. Jacobson, Gene 
     P. Jacobson, and Evan K. Jacobson. The face amount of the 
     non-recourse note was $1,665,000, and the due date on the 
     principal is June 15, 1997. The stated purpose of the loan 
     was the sale of REO. The Loan Workout Committee for REO sales 
     approved the sale and loan to the partnership on May 7, 1987. 
     The structure of the transaction called for Woodcreek on the 
     Bayou Phase II Apartments Partnership to purchase the 
     property by assuming a note with a remaining balance of 
     $1,665,000 and placing a second lien against the property for 
     $203,000. The terms of repayment provided for interest only 
     in years 1 through 5 and principal and interest in years 6 
     through 10. Amortization was to be on a 30-year schedule with 
     a balloon payment due at the end of the tenth year. Interest 
     was to be set for 3% in year 1 and increase by 1% in years 2 
     through 5. Then beginning in year 6, the interest rate would 
     go to 10% and remain at that rate until final payment.
       The property was appraised on June 23, 1986, by William L. 
     Behas, M.A.I.--S.R.P.A. of Behas & Associates. The land was 
     valued at $912,235, and the improvements after rehabilitation 
     were appraised to be valued at $1,462,765 for a fair market 
     value of $2,375,000. Rehabilitation of the improvements, 
     however, were expected to total $595,000, leaving a fair 
     market value at the time of the appraisal of $1,780,000. The 
     appraisal was done on behalf of United Savings Association of 
     Texas.
       12. Northpoint Square. The date of the loan is July 26, 
     1987, and the maker on the note is Northpoint Square 
     Apartments Partnership, Paul C. Jacobson, general partner. 
     There were no guarantors for this transaction. The face 
     amount of the note is $3,105,000 and the due date of the 
     principal is June 26, 1997, the last payment being a balloon 
     payment. The loan was approved by the Loan Workout Committee, 
     and the transaction was structured so that Northpoint Square 
     Apartments Partnership would purchase the property for 
     $3,405,000, which included the partnership's promissory note 
     for $3,105,000. The terms of repayment provided for interest 
     only in years 1 through 5, and principal and interest in 
     years 6 through 10. Amortization was to be on a 30-year 
     schedule with a balloon payment due at the end of the tenth 
     year. Interest was to be set for 3% in year 1, and increase 
     by 1% in years 2 through 5. Then beginning in year 6, the 
     interest would go to 10% and remain at that rate until the 
     final payment.
       The property was appraised on February 18, 1987, by William 
     Murphy, M.A.I., S.R.P.A., of Murphy, Kirby & Associates and 
     was valued at $2,500,000. An analysis of credit did not 
     appear in the materials provided for our review; but shortly 
     after the sale closed, the partnership fell behind in its 
     payments and remained so until foreclosure in 1988. USAT made 
     loans to various entities which, like the borrower in this 
     instance, were controlled by Allan P. Jacobson, Gene P. 
     Jacobson, Paul C. Jacobson, and Evan K. Jacobson. However, it 
     does not appear that the loan-to-one borrower rule would be 
     violated due to the size of USAT.
       13. Cinco Ranch. Cinco/Watson J.V. was formed as a joint 
     venture of United Savings Association of Texas and Dempsey 
     Watson for the purpose of investing in real estate. Cinco/
     Watson purchased 22 commercial tracts totalling 379.83 acres 
     within Cinco Ranch for a purchase price of $33,345,434. 
     Twenty percent of the total purchase price was paid as a down 
     payment, and a non-recourse note was executed in the amount 
     of $26,676,347. Makers on the note were Cinco/Watson Joint 
     Venture, and the payee was Cinco Ranch Venture. Accrued 
     interest was to be paid on June 10 and December 10 of each 
     year, commencing on June 10, 1985, and continuing through and 
     including June 10, 1990. The purpose of the transaction was 
     to acquire approximately one-half of the commercial reserve 
     tracts within Cinco Ranch. USAT was expecting a profit of 
     $26,482,000 as it shared the joint venture's profits. The 
     joint venture proposed was to be between USAT or an affiliate 
     and Dempsey Watson, with 75% of income gain and loss 
     attributed to USAT and 25% to Watson. Watson was to be liable 
     for his pro rata share up to a maximum liability of $1 
     million. The memorandum detailing the joint venture also 
     outlined that Watson would manage the day-to-day affairs of 
     the venture but that ultimately all decisions in connection 
     with the venture would be made by USAT. Dempsey Watson's 
     annual management fee was to be $100,000, plus an additional 
     5% of profits generated by the venture. The interest rate on 
     the note was to be the prime interest rate, plus 2% with a 
     maximum interest rate of 15%.
       An appraisal dated March 17, 1986, appears in the files 
     from Murphy, Kirby & Associates. The appraisal was for the 
     market value of the fee simple title to 379.83 acres of 
     vacant land as of February 11, 1986, and a valuation was 
     placed on the property of $40 million.
       The loan in this transaction was a non-recourse loan. In a 
     file at the MCO Plaza offices of USAT, it is noted that 
     Dempsey Watson is the son-in-law of Walter Mischer, who is 
     president of the Mischer Corporation, which was one of the 
     joint venturers in Cinco Ranch. No wrongdoing can be presumed 
     from these facts alone, but once again, it reflects USAT's 
     continued involvement with ``high rollers'' within the 
     Houston economy.
       14. Remington Partners. Remington Partners acquired the 
     Remington Hotel from Rosewood Hotels, Inc., in 1985. Seventy 
     percent of the purchase money was borrowed from United 
     Savings Association of Texas, which placed a first lien 
     against the hotel. Makers on the note were Remington 
     Partners, a Texas joint venture, William T. Criswell, IV, 
     venturer, Waverly Development Limited Partnership, a 
     venturer, by I.S.R.P. Limited Partnership, by Isaac Stein, 
     sole general partner. The promissory note is in the principal 
     amount of $25,300,000 and was for a term of three years at a 
     fixed rate of 14% interest. Interest payments were to be made 
     the first day of every third month, beginning August 1, 1985, 
     with accrued interest and the principal being due on May 13, 
     1988.
       To further assure that note payments were made, an escrow 
     fund was established in the amount of $9,083,251. This amount 
     represented the interest payments due between May 13, 1985, 
     and May 13, 1988. USAT was allowed to draw upon the escrow 
     fund when each of the interest payments became due.
       An appraisal of the Remington Hotel was conducted by Edward 
     B. Schulz & Company. The purchase price of the Remington 
     Hotel was $32 million, and Schulz appraised the property at 
     $33 million. Schulz stated that the appraisal was made in 
     accordance with contemporary appraisal techniques that met 
     the requirements in guideline R. 41b of the Federal Home Loan 
     Bank Board.
       The only credit history found in the files were financial 
     statements submitted by the Criswells and Isaac Stein. Bill 
     and Sharon Criswell are principals in Criswell Development 
     Company, which in 1985 ranked among the 25 largest 
     diversified development companies. Isaac Stein was then 
     serving as president of Waverly Associates and managed its 
     investment partnerships. Waverly Development Limited 
     Partnership and Criswell Development Company had been 
     successful in past ventures, including a majority equity 
     interest in the Dorchester Hotel in London.
       The Remington Hotel opened in November 1982 and was built 
     by Rosewood Hotels, Inc., in conjunction with the Caroline 
     Hunt Trust Estate at a cost of $48 million. Cost for the 
     building and property totalled more than $65 million. 
     Additional collateral securing the note included a tract of 
     land in Tarrant County, Texas, of 57.9374 acres and stock 
     certificates for 300 shares of National Tubular Systems, 
     Inc., a privately held company controlled by Crest Holdings, 
     Inc., a Cayman Island corporation controlled by Isaac Stein.
       The loan performance history on this transaction was 
     excellent until 1988 due to the fact that $9,083,251 were 
     held in escrow by USAT on which to draw the interest 
     payments. Remington Partners, however, did not repay the 
     principal in a timely manner. A lawsuit was filed and then 
     settled out of court on December 21, 1988. Releases on the 
     underlying promissory note and deed of trust were executed by 
     USAT on December 22, 1988.
     E. Couch Mortgage
       The background of the Couch Mortgage transactions is 
     described in detail in the BS&S Report of September 20, 1991 
     to the FDIC. The September 20, 1991 Report focuses only on 
     the liability of third parties for the Couch Mortgage losses. 
     A case could certainly be made that the officers and 
     directors of USAT were negligent in entering into and 
     monitoring the Couch transactions. In the course of 
     investigating the Couch transactions, we have found no 
     evidence of wrongdoing or complicity on the part of any USAT 
     officers, directors or employees.
       If the FDIC decides to pursue its claims against third 
     parties for the Couch Mortgage losses, then it would seem to 
     be counterproductive to at the same time allege that USAT 
     officers and directors were negligent with regard to the 
     transactions. In fact, it is highly likely that the third 
     parties sued will attempt to raise as a defense the 
     negligence of USAT's officers and directors.
       Because of the lack of evidence of affirmative wrongdoing 
     and the much greater likelihood that damages could be 
     recovered from third parties, we do not recommend initiating 
     litigation against officers and directors of USAT for the 
     Couch losses. It is possible that some of those individuals 
     could be joined as third-party defendants if FDIC elects to 
     sue others for the Couch losses.
     F. Authorization of Dividend to UFGI
       In 1984, USAT sold several branches which resulted in 
     significant increase in capital. According to Mary Mims 
     (``Mims''), operations manager of the treasury department in 
     1984, the branches were sold because the previous merger 
     created a branch overlapping situation. However, an October 
     1984 Texas Business article regarding Hurwitz states 
     ``Hurwitz has devised an innovative plan to sell off up to 48 
     bank branches (including deposit liabilities and all branch 
     properties). If he pulls it off, the deal would 
     augment United's net worth by about $150 million, more 
     than doubling equity in one shot.''

[[Page E2435]]

       The branches were sold to Independent American Savings. 
     According to Crow, Independent American paid a ``ridiculously 
     high price'' for the USAT branches--15% premium. According to 
     Wolfe, when Independent American purchased the branches, it 
     assumed liabilities of $1 billion in deposits. In order for 
     Independent American to do so, USAT provided it an asset of 
     cash flow bonds with a coupon rate at 10%. Since the market 
     price was at a yield of 15%, the spread between the two was a 
     ``paper gain'' in fair market value. Although the gain was in 
     paper, it had time value. The total ``paper gain'' was $90 
     million. USAT issued a cash flow bond to Independent American 
     Savings which contained five series, labeled A-E, in the 
     amount of the total customer balances. As mortgages under the 
     bond paid down, the proceeds of the collateral were paid to 
     the bond. Crow stated that the objective of the sale was to 
     build equity. Although the sale did not result in any cash, 
     it created a ``paper gain'' of approximately $90 million.
       Following the branch sale to Independent American, a $32 
     million dividend payment was made to UFGI. The dividend 
     payment was handled by C.E. Bentley, Jim Pledger and Gerald 
     Williams. The regulators approved a dividend for a certain 
     percent of the amount, if the institution was profitable. 
     According to Crow, USAT was profitable in 1985 solely because 
     of the branch sale. The FHLBB was upset because it was not 
     made aware, at the time of the regulatory approval, of the 
     utilization for the capital.
       Mims stated in her interview that the treasury department 
     maintained the dividend in an USAT certificate of deposit. 
     She added that had the funds from the branch sale not been 
     available, based on the cash flow at the time, UFGI would 
     have been bankrupt within one to two years after the merger. 
     The funds were utilized by UFGI to begin its equity arbitrage 
     activities and to pay the PennCorp debt from the 1983 merger.
       Because this dividend payment was made three years before 
     the institution was closed and because it was approved by the 
     appropriate regulatory agency, we believe it will be 
     difficult to prove gross negligence on the part of the 
     directors. It would be less difficult to prove a lack of 
     prudence on the part of the officers, but we cannot estimate 
     the probability of success on the liability issues at greater 
     than fifty percent (50%). We are also unable to make an 
     assessment of actual damage to the institution from payment 
     of the dividend. Certainly, additional capitalization may 
     have allowed the institution to slow its gains trading 
     activity, but we cannot make an estimate of the possible 
     damages at this time.


                  IV. CLAIMS AGAINST HURWITZ AND UFGI

     A. Corporate Raider Scheme
       The primary conclusion we have drawn from our investigation 
     of the securities area is that Charles Hurwitz used USAT as a 
     deep pocket or source of funds for favors to facilitate his 
     own corporate raider activities. We have outlined our 
     theories and the available documentation in prior 
     recommendations, including the Interim Report of April 29, 
     1991. In our investigation we were unable to find evidence of 
     securities transactions which directly benefitted Hurwitz, 
     such as purchases of Hurwitz entities' junk bonds or 
     equities. We do believe, however, that Hurwitz, together with 
     a group of corporate raiders, traded favors and participated 
     in a scheme or conspiracy to manipulate the market and that 
     USAT was used by Hurwitz in whatever way was necessary to 
     make that scheme work. We have been working with the Drexel 
     task force for over a year and have provided them with 
     substantial analyses and documentation, such as the quid pro 
     quo analyses and the names mentioned list providing 
     information on every player in the network, as well as 
     continual updates. It is our understanding that these sorts 
     of claims against Hurwitz will be handled by the task force 
     and this report will make no recommendation on those claims.
     B. Dividend to UFGI
       It is our understanding that the claim against UFGI for 
     payment of the dividend is being separately handled in 
     negotiations with UFGI.
     C. Tax Reform Claim
       We understand the tax refund claim is being separately 
     handled in negotiations with UFGI.
     D. Lack of Capital Infusion
       MCO Holdings indicated in several SEC filings that it and 
     Federated filed an application with the Federal Home Loan 
     Bank Board (``FHLBB'') on June 29, 1983, for approval to 
     acquire more than 25% of the outstanding shares of common 
     stock in order to become savings and loan holding companies. 
     The application was approved by the FHLBB on December 6, 
     1984, subject to a capital infusion requirement. For as long 
     as MCO and Federated controlled USAT, both entities were to 
     contribute their pro rata share of any additional capital 
     infusion required for USAT to maintain its regulatory net 
     worth. If in excess of 50% of the voting shares of UFGI were 
     acquired by MCO and Federated, they were required to 
     contribute 100% of any additional capital. Subsequent to the 
     application approval, MCO Holdings and Federated held 
     discussions with the FHLBB concerning the possible 
     modification of the condition.
       The FHLBB granted MCO and Federated extensions in order to 
     acquire additional shares of UFGI's common stock. The 
     extension was granted so that MCO, Federated and the FHLBB 
     could continue discussions regarding the modification of the 
     capital infusion guarantee. The last extension granted by the 
     FHLBB expired on December 22, 1987. The MCO 10K states that 
     it had no intention to infuse capital into UFGI at the time 
     of the filing. Also, it acknowledges that UFGI agreed to 
     maintain USAT's capital requirements above the minimum level 
     established by the FSLIC. However, it stated that UFGI did 
     not have sufficient assets to contribute capital to USAT in 
     order to maintain its minimum capital requirement.
       The Federal Home Loan Bank of Dallas (``FHLB-Dallas'') 
     directed the UFGI Board of Directors, on May 13, 1988, to 
     infuse capital into USAT. Although the directors acknowledged 
     the receipt of the letter, capital was not infused and UFGI 
     did not respond to the letter. On December 8, 1988, the FHLB-
     Dallas again directed UFGI to infuse additional equity 
     capital into USAT. UFGI did not make such infusion. According 
     to Connell, Hurwitz will assert that he infused approximately 
     $100 million of capital into USAT as a result of the 
     Weingarten Realty transactions.
       This claim is being pursued separately by other fee 
     counsel.
     E. Advances by USAT for the Benefit of Affiliates
       We reviewed the payments made by USAT on behalf of UFGI and 
     other affiliates and found evidence of:
       a. payment of salaries and bonuses by USAT when a 
     substantial part of the employee's job included work for UFGI 
     or other Hurwitz entities, such as Ron Heubsch;
       b. advances of affiliates' expenses which were carried on 
     USAT's books as receivables but remained unpaid.
       There is evidence that UFGI repaid these advances late in 
     1988 and we were consistently told that repayment was always 
     contemplated. We do not feel that we have strong proof of 
     misappropriation of USAT funds through payment of affiliates' 
     expenses. However, the outstanding amount should be recouped 
     and we understand these claims are being separately handled 
     in negotiations with UFGI.


                    V. CLAIMS AGAINST THIRD PARTIES

     A. Accountants
       An investigation of the potential liability of the auditor 
     of USAT was conducted by BS&S. The results of our 
     investigation is included in a Report submitted to the FDIC 
     on September 20, 1991. The Report focused on the liability of 
     USAT's auditor, Peat, Marwick & Mitchell (now known as KPMG 
     Peat Marwick), for general auditing negligence issues, as 
     well as issues relating directly to the Couch Mortgage 
     transactions. That Report also included our opinion on the 
     liability of Couch Mortgage's auditor, Ernst & Whinney (now 
     known as Ernst & Young), for its failure to disclose the 
     ongoing fraud being committed by Couch. Please refer to the 
     September 20, 1991 report for detailed conclusions and 
     litigation recommendations.
     B. Lawyers
       Potential professional liability claims against attorneys 
     were considered in connection with all of the other 
     investigations mentioned in this report. Attorney liability 
     issues have been addressed in the September 20, 1991 report 
     on Potential Professional Liability Claims, as well as in the 
     Chapel Creek Ranch litigation. In the course of investigating 
     real estate and loan transactions, securities activities, and 
     other director and officer liability issues, the possibility 
     of attorney negligence was explored. Other than what has been 
     discussed in earlier reports, we did not discover any 
     apparent instances of attorney malpractice. USAT utilized a 
     number of different law firms for its legal work, the two who 
     received most work being the Houston firms of Mayor, Day & 
     Caldwell and Schlanger, Cook, Cohen, Mills & Grossberg. No 
     law firm seemed to act as ``general counsel'' for the 
     institution. It appears from USAT's records that Arthur 
     Berner, in-house general counsel for USAT, gave legal advice 
     regarding the most strongly criticized activities of the 
     institution, including the golden parachute employment 
     agreements, the 1988 executive bonus plan, the inter-company 
     receivable between USAT and UFG, and the failure of UFG to 
     infuse additional capital into USAT.
     C. Appraisers
       Other than the Chapel Creek Ranch litigation and the Couch 
     Mortgage transactions, our investigation has not revealed any 
     apparent problems relating to appraisers involved in loan and 
     real estate investment transactions. There were numerous 
     instances of USAT failing to obtain appraisals in violation 
     of the regulations, and a few instances of appraisals that 
     did not comply with Rule 41b. However, these issues go more 
     to the negligence of officers and directors in approving 
     transactions with insufficient or no appraisals. In summary, 
     other than what has been previously reported, we did not 
     find any appraiser errors or omissions.
     D. Real Estate Brokers
       USAT entered into contracts with various real estate 
     brokers who were employed to dispose of real estate owned by 
     USAT. These contracts were reviewed, as were the lists of 
     properties on which the realtors earned commissions. No 
     wrongdoing was discovered, although it was noted that many of 
     USAT's deals seemed to be ``broker-driven,'' with the broker 
     dictating the terms of the transaction. Again, this reflects 
     on the negligence of the officers and directors in failing to

[[Page E2436]]

     maintain and enforce prudent lending practices. No litigation 
     is recommended against brokers.
     E. Securities Industry
       Early in the investigation we thoroughly reviewed the role 
     of Solomon Brothers in the sale of MBS products to USAT. 
     Mortgage-backed securities were developed and perfected by 
     Lew Ranieri at Solomon Brothers and the firm had a virtual 
     monopoly on the product until 1986 when other firms began to 
     lure its traders away and develop their own programs.
       Several people told us that the initial MBS portfolio was 
     sold to United as a sure thing. We were told there was 
     inadequate explanation of the risk. Unfortunately, the 
     written documents do not bear out this claim, and we were 
     unable to find any evidence of misrepresentations or 
     misleading statements other than the self-serving statements 
     of Crow and others. In light of this and the fact that USAT 
     had been sold to a Ranieri partnership, in consultation with 
     the FSLIC attorney at the time, we did not pursue the 
     investigation any further.
       We also reviewed the relationship of USAT and Drexel 
     Lambert and Bear Stearnes & Co. The Drexel relationship was 
     referred to the task force as described above and we found no 
     irregularities in the transactions with Bear Stearnes & Co.


                VI. SUMMARY AND PROBABILITIES OF SUCCESS

     A. Claims Against Officers and Directors of USAT
       In summary, we believe the following claims could be made 
     against the directors and controlling officers of USAT:
       Gross negligence--failure to institute and require 
     compliance with prudent lending practices; violation of 
     federal regulations relating to lending and investment 
     transactions; failure to implement policies or supervise the 
     securities investment department of the institution; and 
     allowing the institution to. . . .

                                  ____
                                  

                               Document E

                               Memorandum

     To: All the good, hardworking employees of the FDIC.
     From: The people of the United States of America.
     Re: Redwood Forests and Failed S & L's.
     Date: November 22, 1993.
       You may not be aware that there is a direct connection 
     between the Savings and Loans, the FDIC and the clearcutting 
     of California's ancient redwoods, but there is and we'd like 
     to fill you in and ask for your help. It just so happens that 
     a man named Charles Hurwitz, who took over the Pacific Lumber 
     redwoods in 1985 through a Drexel Burnham junk bond buyout, 
     also was responsible for the collapse of United Savings 
     Association of Texas (USAT). In fact, Drexel-Burnham helped 
     Hurwitz take over 200,000 acres of magnificent redwood forest 
     in exchange for Hurwitz's United Savings buying over billion 
     dollars' worth of Drexel's junk bonds. The bank later failed 
     and the redwoods are still crashing. Your agency did 
     outstanding work in nailing Drexel's Michael Milken on this 
     very scam. The FDIC has even gone so far as to state that 
     Hurwitz's bank owes the taxpayers $548 million for 
     misappropriating depositors' funds. But for some reason, the 
     FDIC hasn't gotten around to issuing criminal or civil 
     charges against Charles Hurwitz for his end of this devil's 
     bargain.
       Meanwhile, back in Washington, DC, the U.S. Congress has 
     been kind enough to introduce a bill, the Headwaters Forest 
     Act, which would protect 44,000 acres of redwoods which 
     Hurwitz is currently clearcutting, a process in which every 
     living thing is cut down. All to pay off a junk bond debt! 
     It's great that we're going to protect this land from 
     Hurwitz, but we don't want federal dollars to go into his 
     pocket while he owes the taxpayers $548 million. 
     Coincidentally, Hurwitz is asking for more than $500 million 
     for the Headwaters Forest redwoods. So if your agency can 
     secure the money for his failed S & L, we the people will 
     have the funds to buy Headwaters Forest. Debt for nature. 
     Right here in the U.S. That's where you come in.
       Go get Hurwitz. He and people like him have been traitors 
     to this country, ripping apart the very economic and 
     environmental fabric of this country for personal gain. Now 
     our nation is on the verge of collapse, thanks to guys like 
     Hurwitz. For five years your agency has had this $548 million 
     dollar claim against Hurwitz's United Financial Group, the 
     holding company for United Savings Association of Texas. The 
     statute of limitations runs out at the end of 1993. He can 
     actually get away with this robbery if your agency doesn't 
     act soon. Justice delayed is justice denied. After five years 
     of waiting it's time to say: ``Charley Hurwitz, your time is 
     up!''
       Here's what you can do: Write and talk to your policy 
     makers at the FDIC, in particular your Chairman, Andrew C. 
     Hove, Jr., and ask them to re-prioritize your case against 
     Hurwitz's United Financial Group. Talk amongst yourselves, 
     too. Offer new, creative strategies of protecting the economy 
     and ecology of this precious land of ours. Write to your 
     Congressional Representative and Senators in Washington, DC 
     and ask them to support the Headwaters Forest Act (HR2866). 
     Lastly, we'd like to invite you to come out to the redwoods 
     and see trees taller than you office building and as wide 
     around as a room in your house. Give us a call at 707/468-
     1660 in California. We'd love to show you around the 
     magnificent redwood forest, as well as show you the appalling 
     clearcuts Hurwitz is performing. Don't delay. The junk bond 
     traitors must be brought to justice. Debt for Nature and Jail 
     for Hurwitz. Thank you.

                                  ____
                                  

                                     National Audubon Society,

                                                   Washington, DC.
       The National Audubon Society strongly supports the 
     Headwaters Forest Act, H.R. 2866, introduced by Dan Hamburg 
     (D-CA) and Pete Stark (D-CA), authorizing the purchase of 
     44,000 acres of Redwood forest to be added to the Six Rivers 
     National Forest in Northern California. This legislation 
     would acquire the largest unprotected ancient redwoods groves 
     in the world. Home to a great array of species, from mountain 
     lion and black bear to giant salamanders and flying 
     squirrels, the Headwaters Forest is composed of gigantic 
     trees up to 2000 years old. Also found in its interior 
     recesses are several threatened and endangered species 
     including spotted owls, marbled murrelets, goshawk and a host 
     of salmon species.
       This land had been managed on a sustainable forestry basis 
     by the Pacific Lumber Co. until a recent takeover by Charles 
     Hurwitz, CEO of Maxxam. In order to pay off junk bonds used 
     to buy off the lands, Maxxam has more than doubled the cut of 
     the ancient redwoods. Over 40,000 acres have been liquidated 
     already. HR 2866 provides for a restoration program and gives 
     full protection to the old growth and wilderness designation 
     for the 3,000 acre Headwater Grove.
       Please write your representative today and ask him/her to 
     support HR 2866. Maxxam is beginning to log off this great 
     tract of giant redwoods; Court injunctions have halted 
     logging in the virgin groves, but the stays are only 
     temporary. Unless there is a serious legislative effort to 
     acquire this forest, Hurwitz will assure that all the 
     knowledge and wonder inside this area will be lost forever.

                                  ____
                                  

                                                 Earth First!,

                                                  Garberville, CA.

 Rally Today, Monday at FDIC in DC & NY to Demand that Redwood Raider 
                         Hurwitz Pay S & L Debt


  Chair of House Banking Committee Sends Letter Asking FDIC to Pursue 
                                Hurwitz

       Animals and activists from the redwood forest will rally 
     outside the Headquarters of the Federal Deposit Insurance 
     Corporation (FDIC), 550 17th Street NW in Washington, DC this 
     Monday, November 22 at 1 pm to insist that an existing $548 
     million claim against redwood raider Charles Hurwitz's failed 
     S & L be vigorously pursued before the statute of limitations 
     runs out at year's end. A companion rally will take place at 
     the FDIC's public relations department in New York at 452 
     Fifth Avenue at 10 am. The animals will be delivering a 
     memorandum to FDIC employees, including Chairman Andrew C. 
     Hove, Jr., asking that the man who has been hacking down 
     their ancient redwood homes be indicted for his treachery 
     against the American taxpayers.
       In a separate but related development, Rep. Henry Gonzalez 
     (D-San Antonio), Chairman of the House Banking Committee, 
     faxed a letter last Friday to FDIC Chairman Hove, calling on 
     the agency to act on the claim against Hurwitz, which has 
     languished for five years without any criminal or civil 
     action being pursued. Hurwitz, a junk bond raider who tripled 
     the logging rate of the Pacific Lumber Company after his 
     MAXXAM Corporation took it over in 1985 and incurred a $750 
     million debt, is also responsible for the failure of United 
     Savings Association of Texas (USAT). USAT cost the taxpayers 
     $1.6 billion to bail out in 1988, making it America's fifth 
     largest failed S & L according to Fortune. The $548 million 
     claim stands against USATs holding company, United Financial 
     Group, and stems from the failure of Hurwitz to fulfill an 
     agreement with the FDIC to maintain a minimum net worth of 
     that amount in the bank.
       This activity takes place in light of the Headwaters Forest 
     Act (HR 2866) moving smoothly through the House of 
     Representatives. The bill, introduced by California 
     Congressmen Dan Hamburg and Pete Stark, along with over 90 
     co-sponsors, would authorize the federal government to 
     purchase 44,000 acres of redwood forest. It has the thumbs up 
     from President Clinton. However, Earth First! activists, who 
     originated this issue in 1986 by hiking, mapping, naming and 
     promoting the Headwaters Forest, are concerned that Charles 
     Hurwitz could receive federal dollars for the ancient 
     redwoods before he has paid back his S & L debt to the 
     American taxpayers. ``We seek justice for the American people 
     as well as justice for the forest animals,'' said Darryl 
     Cherney, a Northern California Earth First! organizer who has 
     traveled to Washington to organize this rally. ``Hurwitz's 
     $500 million asking price for Headwaters conveniently 
     approximates his S & L debt. With the legality of the PL 
     takeover and the S & L failure in question our . . .

 The Failure of United Savings Association of Texas (USAT): Fact Sheet

       1. The FDIC has an outstanding claim against United 
     Financial Group, holding company for the failed USAT, for 
     $548 million dollars. (United Financial Group 10-K Report, 
     year ending Dec. 31, 1992, p. 1 and

[[Page E2437]]

     Wall Street Journal, ``United Financial Found Liable by 
     FDIC,'' May 22, 1992).
       2. Five years have passed since this claim was asserted in 
     1988, and while the FDIC has extended the statute of 
     limitations through tolling agreements, the current statute 
     of limitations ends on December 31, 1993 (UFG, 10-Q Report, 
     Quarter ending June 30, 1993, p. 6).
       3. When it was seized in 1988 by the FDIC, USAT was a 
     wholly-owned subsidiary of UFG, whose controlling 
     shareholders at the time of the collapse were Charles 
     Hurwitz-run companies MAXXAM, MCO, and Federated Development 
     Corp. Also, Drexel Burnham Lambert was a 9% shareholder 
     (Washington Post, ``Thrift Regulations Slipping . . .'' by 
     Allan Sloan, 4/16/91; MAXXAM Prospectus, 1988; and FDIC vs. 
     Milken, 1/18/91, pp. 82-84).
       4. From 1985 to 1988, USAT purchased over $1.3 billion 
     worth of Drexel-underwritten junk bonds. During that same 
     period of time, according to an FDIC lawsuit against Michael 
     Milken, ``the Milken group raised about $1.8 billion of 
     financing for Hurwitz's takeover ventures,'' which included 
     the 1985 takeover of Pacific Lumber Company, the world's 
     largest private owner of old growth redwood (FDIC vs. Milken, 
     1/18/91, pp 82-84).
       5. The failure of USAT constituted the fifth largest failed 
     S & L Bailout, as of 1990, costing the taxpayers $1.6 billion 
     (Fortune, Sept. 10, 1990).
       6. Hurwitz has been sued by the Securities & Exchange 
     Commission in 1971 for alleged stock manipulation; charged by 
     New York State regulators in 1977 with looting Summit 
     Insurance Co.; sued by investors for alleged fraud in the 
     takover of Pacific Lumber; sued by U.S. Labor Dept. and 
     employees for investing PL's pension fund with now failed-
     Executive Life Insurance in return for their junk-bond 
     financing of the PL takeover; sued by MAXXAM shareholders for 
     a land swindle in Rancho Mirage, CA; and sued (8 times) by 
     EPIC of Garberville, CA and Sierra Club for violations of 
     California Forest Practices Act; etc., etc., etc. (Wall 
     Street Journal, ``For Takeover Baron, Redwood Forests Are 
     Just One More Deal,'' August 6, 1993).

                                  ____
                                  

                           MAXXAM Group Inc.

              Los Angeles, California, February 11, 1988.

                       Interest of MCO in MAXXAM

       MCO owns a controlling interest in MAXXAM. See 
     ``Information Concerning MAXXAM--Business of Maxxam.''

            Interest of MCO in United Financial Group, Inc.

       MCO owns 1,104,098 shares of UFG's common stock 
     (approximately 13.5% of the outstanding shares) which is 
     acquired in 1982 and 1983. Federated owns 801,941 shares of 
     UFG's common stock (approximately 9.8% of the outstanding 
     shares). Pursuant to a rights offering made by UFG to the 
     holders of its common stock, MCO and Federated purchased 
     688,824 and 47,702 shares, respectively (approximately 91.2% 
     and 6.3% respectively, of the outstanding shares), of UFG's 
     Series C Convertible Preferred Stock (``Series C Stock'') in 
     1984. Each share of Series C Stock was convertible into two 
     shares of UFG common stock at any time after June 15, 1987. 
     Effective May 4, 1987, UFG entered into an agreement with MCO 
     and Federated whereby MCO and Federated exchanged their 
     736,526 shares of Series C Stock for an equal amount of new 
     Series D Convertible Preferred Stock (``Series D Stock'') 
     issued by UFG. The Series D Stock has the same conversion and 
     other rights as the Series C Stock, except that it is 
     convertible at any time after June 15, 1988. In December 
     1985, MCO entered into an option agreement with Drexel 
     Burnham with respect to 300,000 shares of the common stock of 
     UFG. In the event MCO does not exercise the option during a 
     30-day period commencing July 1, 1988, MCO has agreed to 
     grant Drexel Burnham an option to sell such shares to MCO 
     during a 30-day period commencing August 1, 1988. The 
     purchase price in either event is $8.59 per share. MCO paid a 
     fee of $683,000 to Drexel Burnham for the purchase option. 
     Two of UFG's eight directors are also directors of MCO. UFG 
     is a savings and loan holding company and conducts business 
     primarily through its wholly-owned subsidiary, United Savings 
     Association of Texas (``USAT''). In addition, other 
     subsidiaries of UFG provide mortgage lending, reinsurance and 
     venture capital services. The carrying value of MCO's 
     investment in UFG's common stock and Series D Stock was $12.7 
     million at September 30, 1987. The closing price of UFG's 
     common stock on December 31, 1987 was $7/16 per share.
       Federated owns approximately 28.2% of the MCO Common Stock 
     and 91.3% of the MCO Class A Preferred Stock. On June 29, 
     1983, MCO and Federated filed an application with the Federal 
     Home Loan Bank Board (the ``FHLBB'') for approval to acquire 
     more than 25% of the outstanding shares of common stock of 
     UFG and thereby become savings and loan holding companies. 
     Such application was approved by the FHLBB on December 6, 
     1984, subject to compliance with several conditions, 
     including that so long as MCO and Federated control USAT, 
     they shall contribute their pro-rate share (based on their 
     holdings of UFG) of any additional infusion of capital that 
     may be necessary for USAT to maintain its regulatory net 
     worth. In addition, if MCO and Federated acquire in the 
     aggregate in excess of fifty percent of the voting shares of 
     UFG, they would be required to contribute one hundred percent 
     of any additional capital that may be required to maintain 
     the regulatory net worth of USAT. Subsequent to the approval 
     of the application, MCO and Federated held discussions with 
     the FHLBB concerning the possible modification of the 
     condition relating to the maintenance of USAT's regulatory 
     net worth.
       The FHLBB originally granted MCO and Federated 120 days 
     from December 6, 1984 within which to consummate the 
     acquisition of additional shares of UFG's common stock. This 
     period was extended by the FHLBB in order to provide 
     sufficient time for MCO, Federated and the FHLBB to continue 
     discussions regarding the requested modification of net worth 
     guarantees. The last extension granted by the FHLBB expired 
     on December 22, 1987. Federated and MCO anticipated 
     submitting a new application with updated financial 
     information, while continuing to discuss with the FHLBB the 
     possible modification of the condition relating to the 
     maintenance of USAT's regulatory net worth. Although the 
     instruments governing MCO's indebtedness do not prohibit or 
     restrict MCO from infusing capital into UFG, MCO has no 
     intention of doing that at the present time.
       UFG files periodic reports with the Commission and its 
     common stock is traded in the over-the-counter market and 
     reported on the NASDAQ reporting system.

                                  ____
                                  

    Thrift Regulators Slipping and Tripping Over One Another's Feet

                            (By Allan Sloan)

       There are days when you wonder whether the federal 
     government's right hand knows what its left hand is doing--or 
     even whether the government has two left feet, which is why 
     it keeps tripping over itself.
       Consider, if you will, the federal deposit insurance 
     bureaucracy's schizophrenic dealings with Charles Hurwitz, 
     the Houston-based entrepreneur who controls Maxxam Group, a 
     conglomerate that's into aluminum, redwood and real estate. 
     Although Kaiser Aluminum is Maxxam's biggest holding, Hurwitz 
     is best known for the 1986 takeover of Pacific Lumber, the 
     first major hostile takeover funded by junk bonds. Hurwitz's 
     name is also immortalized in newspaper libraries because he's 
     constantly attacked for allegedly devastating Pacific 
     Lumber's redwood forests to pay off the bonds. But today 
     we're talking about deposit insurance, not trees.
       One part of the deposit insurance bureaucracy is hot to 
     sell Maxxam some properties seized from dead savings and loan 
     associations. Another part of the bureaucracy is chasing 
     United Financial Group, a company of which Hurwitz is the 
     biggest stockholder and the former chairman, to recovery part 
     of the $2 billion or so it cost to bail our depositors of a 
     United-owned S&L that failed in 1988.
       Let's start with the Resolution Trust Corp., which 
     liquidates dead S&Ls. The RTC, which had bad loans for 
     foreclosed properties up the kazoo, is doing something 
     intelligent by trying to sell them in bulk. Last month, the 
     RTC announced that Maxxam had put in the highest bid, $130.1 
     million in cash, for a batch of foreclosed properties and 
     stinko loans. The deal is scheduled to close by June 16.
       But at the same time that the TRC wants to sell these 
     things to one Hurwitz company, the Federal Deposit Insurance 
     Corp., a sister agency run by the same board that controls 
     the RTC, is trying to collect damages from the United 
     Financial Group, owner of the failed United Savings 
     Association of Texas. Although Hurwitz didn't technically 
     control United Financial or its S&L, he was chairman of 
     United Financial until 10 months before the S&L failed. He 
     remains United Financial's biggest shareholder, which means 
     he had more than a little to say about how the place was run.
       The FDIC wants United Financial to fork over some dough 
     because, its says, United Financial agreed to keep the now-
     defunct United Savings Association of Texas adequately 
     capitalized. United Financial denies that United Savings was 
     closed at a stated cost to the deposit insurance fund of 
     $1.37 billion and an actual cost that's probably much higher.
       United offered the FDIC $6.25 million cash and a note that 
     could produce $4 million more. The idea was to make the FDIC 
     go away, reorganize United Financial and use the tax loss 
     created by the seizure of United Savings to shelter income 
     from new and profitable acquisitions. The proposal settlement 
     was canceled by the FDIC, according to United Financial.
       In a logical world, you try not to do business with people 
     who have already cost you money. As they say. ``Fool me once, 
     shame on you. Fool me twice, shame on me.'' And in fact, the 
     S&L bailout bill contains a provision that seems to bar 
     anyone who has stiffed deposit insurance funds for more than 
     $50,000 from doing business with the agencies administering 
     the bailout.
       However, the law, as interpreted by RTC spokesman Stephen 
     Katsanos, is that anyone who cost the deposit insurance 
     agencies $50,000 or more can't be a contractor to the bailout 
     folks, but it can buy property from them. That apparently 
     includes Hurwitz, ``Absent his being charged with wrongdoing, 
     his money is good,'' Katsanos said. Katsanos said that the 
     RTC knew about Hurwitz's involvement with United Financial, 
     but that was no reason not to take his money.
       Maxxam spokesmen were more than a little upset when they 
     heard that I planned to

[[Page E2438]]

     tie Hurwitz's pending deal with the RTC to the failure of 
     United Savings. One spokesman stressed that Hurwitz owned 
     only 23.3 percent of United Financial and wasn't an officer 
     of the failed S&L. Regulators couldn't possibly have been 
     unhappy with Hurwitz, the spokesman said, because when United 
     Savings was failing, the regulators asked another Hurwitz 
     company--Maxxam--to put in a bid. (A competing bidder won.)
       Maxxam spokesman said that the unconventional investments--
     among them junk bonds and a part ownership in a Houston taxi 
     company--that Hurwitz recommended made money for United 
     Savings. He also said that the S&L failed not because of 
     wrongdoing, but because many of its borrowers lost their jobs 
     and couldn't pay their mortgages. ``This is a human tragedy 
     caused by economic conditions,'' he said.
       Interestingly enough, the RTC had a chance to take a $181.5 
     million Maxxam note containing escape clauses, but opted 
     instead for $130.1 million cash. So, you see, deposit 
     insurance regulators are indeed uncoordinated. But I never 
     said they were stupid.

                                  ____
                                  

                               Document F

                                                   Federal Deposit


                                        Insurance Corporation,

                                 Washington, DC, December 3, 1993.
     Memo to: Chairman Hove.
     From: Alan J. Whitney, Director.
     Subject: Significant Media Inquiries and Related Activities, 
         Week of 11-29-93.
       REGULATORY CONSOLIDATION: Several news organizatons have 
     asked what the FDIC's position is on the agency consolidation 
     proposal unveiled last week by Treasury. They were told you 
     believed that with Board appointments imminent, it would be 
     inappropriate to take an agency position until the full board 
     is in place.
       THRIFT CONVERSIONS: Crain's New York Business, Philadelphia 
     Inquirer and American Banker newsletters inquire about the 
     thrift mutual-to-stock conversion policy that the FDIC is 
     currently developing, specifically when our position on this 
     subject will be published. The calls came after American 
     Banker ran an article in the Nov. 26 edition reporting on 
     Rep. Gonzalez' legislation to limit thrift management profits 
     from the conversions. We also received several inquiries 
     about our response to Cong. Neal's letter of November 22 to 
     you on the same subject, to which we have not yet responded.
       O'MELVENY & MYERS: On Monday, the Supreme Court agreed to 
     hear this case, involving the FDIC's ability to sue attorneys 
     who represented banks that failed. The decision to hear the 
     case prompted a flurry of press inquires about similar cases 
     past and present. We provided some statistical data and 
     limited information about the Jones Day case, which is still 
     active.
       FIRST CITY BANCORPORATION: Bloomberg Business News, Houston 
     Bureau, called regarding possible settlement in the First 
     City Bancorporation's claims case. It seems someone is 
     talking, because the reporter asked about a December 14 FDIC 
     Board meeting to discuss the settlement. The reporter wanted 
     to know: If the FDIC committee working on the agreement 
     approves the plan, does that mean the Board will ``rubber 
     stamp'' it? We advised the Board does not rubber stamp 
     anything. The Houston Chronicle also made several inquiries 
     about a possible settlement in this case, all of which we 
     answered with the standard response that we do not comment on 
     ongoing litigation.
       LOS ANGELES TIMES: Michael Parrish asked whether FDIC 
     lawyers have considered whether we could legally swap a 
     potential claim of $548 million against Charles Hurwitz, 
     (stemming from the failure of United Savings Assn. of Texas) 
     for 44,000 acres of redwood forest owned by a Hurwitz-
     controlled company. We advised Parrish we're not aware of any 
     formal proposal of such a transaction. However, we noted that 
     a claim can be satisfied by relinquishing title to assets, 
     assuming there is agreement on their value. We didn't go any 
     further with Parrish, but Dough Jones notes that even if 
     Hurwitz satisfied our claim by giving us the redwoods, it 
     wouldn't result in what Earth First! (the folks who 
     demonstrated in front of the main building last month) 
     apparently is proposing, i.e., that we then deed the redwoods 
     property to the Interior Department. That would require some 
     extensive legal analysis and, since any claim we might assert 
     against Hurwitz would be a FRF matter, would likely entail 
     Treasury Department concurrence.

                                  ____
                                  

                               Document G

       Maxxam, Inc., is a publicly traded company with market 
     capitalization, as of November 16, 1993, of $288 million and 
     total assets of $3.5 billion. We are also reviewing a 
     suggestion by ``Earth First'' that the FDIC trade its claims 
     against Hurwitz for 3000 acres of redwood forests owned by 
     Pacific Lumber, a subsidiary of Maxxam.

                                  ____
                                  

                               Document I

       Jack, I thought about our conversation yesterday. My advice 
     from a political perspective is that the ``C'' firm is still 
     politically risky. We would catch less political heat for 
     another firm, perhaps one with some environmental 
     connections. Otherwise, they might not criticize the deal but 
     they might argue that the firm already got $100 million and 
     we should spread it around more.
       Those are just my unsolicited thoughts.

                                  ----
                                  --__
                                  

                               Document L

                       Attorney Client Privilege


                         Attorney Work Product

     Memorandum To: Board of Directors, Federal Deposit Insurance 
         Corporation
     From: Jack D. Smith, Deputy General Counsel; Stephen N. 
         Graham, Associate Director (Operations)
     Date: July 27, 1995
     Subject: Authority to Institute PLS Suit; Institution: United 
         Savings Association of Texas, Fin #1815; Proposed 
         Defendants: Former directors and officers, de facto 
         director and controlling person Charles Hurwitz.

       In addition to presenting the attached authority to sue 
     memorandum for Board action, this memorandum reports on the 
     status of the continuing investigation of the failure of 
     United Savings Association of Texas (``USAT''), the separate 
     investigation of USAT being conducted by the Office of Thrift 
     Supervision (OTS), current tolling agreements, and settlement 
     negotiations with United Financial Group, Inc. (UFG), USAT's 
     first tier holding company.
       We were advised on July 21, 1995 that Charles Hurwitz would 
     not extend our tolling agreement with him. Consequently, if 
     suit is to be brought it must be filed by August 2, 1995. We 
     had hoped to delay a final decision on this matter until 
     after OTS decides whether to pursue claims against Hurwitz, 
     et al. However, Hurwitz's actions have precluded that 
     possibility. Thus the Board must now decide whether to 
     authorize suit. While we would only sue Hurwitz at this time, 
     rather than dividing the memo and, possibly, having to bring 
     it back to deal with other individuals at a later time, the 
     attached ATS seeks authorization to sue all of the 
     individuals against whom we would expect to assert claims. In 
     addition to the claims asserted against the group of 
     defendants, Hurwitz would be sued individually for failure to 
     cause compliance with certain net worth maintenance (NWM) 
     agreements.
       Recommendation: That the FDIC, as receiver of United 
     Savings Association of Texas (USAT), Houston, (with assets of 
     $4.6 billion and loss to the FDIC of $1.6 billion) authorize 
     suit for approximately $300 million in damages against the 
     proposed defendants identified on Exhibit A.
       In our view, Hurwitz and the other proposed defendants were 
     grossly negligent. However, we also estimate a 70% 
     probability that most or all of the conventional claims that 
     could be made in the FDIC's case would be dismissed on 
     statute of limitations grounds. Hurwitz's failure to cause 
     compliance with the NWM agreements has a better probability 
     on the statute of limitations issue, but there are numerous 
     obstacles to successful prosecution of that claim. 
     Nonetheless, we believe the litigation risks are worth 
     taking because of the egregious character of the 
     underlying behavior in this case which caused enormous 
     losses, and to further our ongoing efforts to shape the 
     law evolving in this area.
     I. Background
       USAT was placed into receivership on December 30, 1988. 
     After a preliminary investigation into the massive losses at 
     USAT, the FDIC negotiated tolling agreements with UFG, 
     controlling person Hurwitz and ten other former directors and 
     officers of USAT/UFG who were either senior officers or 
     directors that were perceived as having significant 
     responsibility over the real estate and investment functions 
     at the institution.
       In May 1994, after a series of meetings with the potential 
     defendants and the exchange of considerable documents and 
     other information, we prepared draft authority to sue 
     memorandum recommending that we pursue claims against Hurwitz 
     and certain USAT former officers and directors for losses in 
     excess of $200 million. The recommended claims as then 
     proposed involved significant litigation risk. Most notably, 
     the principal loss causing events occurred more that two 
     years prior to the date of receivership, and were therefore 
     at risk of dismissal on statute of limitations grounds. In 
     light of the Fifth Circuit's opinion in Dawson, a split of 
     authority in the federal trial courts in Texas on the level 
     of culpability required to toll limitations and the Supreme 
     Court's refusal to consider whether a federal rule should be 
     adopted under which negligence by a majority of the directors 
     would toll the statute of limitations, our strategy at that 
     time was to assert that gross negligence was sufficient to 
     the toll the statute of limitations. After briefings with the 
     Deputies to the Directors and further discussion with the 
     potential defendants, we decided to defer an FDIC decision on 
     whether to assert our claims, in order to further investigate 
     the facts, give time for the Texas law on adverse dominations 
     to take more concrete shape and ascertain the views of OTS. 
     Therefore, the tolling agreements were continued.
     II. OTS's Involvement
       Prior to deferring a decision on the FDIC's cause of 
     action, we had begun to discuss with OTS the possibility of 
     OTS pursuing these claims (plus a net worth maintenance 
     agreement claim) through administrative enforcement 
     proceedings. After several meetings with senior staff of the 
     OTS Office of Enforcement, we entered into a formal agreement 
     with the OTS, who began an independent investigation into the 
     activities of various directors and officers of USAT, 
     Hurwitz, UFG, as well as USAT's second tier

[[Page E2439]]

     holding company Maxxam, Inc, a publicly traded company that 
     is largely controlled by Hurwitz. The FDIC is paying OTS's 
     costs in connection with this matter.
       The OTS has reviewed extensive documentation and has 
     recently conducted a series of administrative depositions. We 
     have been informed that OTS staff is currently preparing a 
     broad-based draft Notice of Charges against Hurwitz and 
     others, including Maxxam, for substantial restitution for 
     unsafe and unsound practices and for enforcement of a net 
     worth maintenance agreement. Under the terms of our 
     agreement with OTS, FDIC will be the beneficiary of any 
     recovery from the OTS enforcement action through 
     settlement or litigation against the proposed respondents. 
     All the potential respondents in the OTS investigation, 
     including Hurwitz, have signed tolling agreements with OTS 
     which expire on December 31, 1995. OTS staff's current 
     expectation is that they will seek formal approval for 
     this case before the tolling agreements expire on December 
     31, 1995.
     III. Significant Caselaw Developments Have Further Weakened 
         the Viability of Suit by the FDIC
       Although we have continued to investigate and refine our 
     potential claims during the pendency of the OTS 
     investigation, two significant court decisions, and the 
     failure of Congress to address the statute of limitations 
     problems, have further weakened the FDIC's prospects for 
     successfully litigating our claims in the United States 
     District Court for the Southern District of Texas.
     A. Statute of Limitations
       In the recent decision of RTC v. Acton, 49 F.3d 1086 (5th 
     Cir. 1995), the Fifth Circuit held that under Texas law, only 
     self-dealing or fraudulent conduct, and not gross negligence, 
     is sufficient to toll the two year statute of limitations 
     under the doctrine of adverse domination. As a result of this 
     opinion, we cannot rely on an argument that gross negligence 
     by a majority of the Board members is sufficient to toll the 
     statute of limitations. There is very little, if any, 
     evidence of fraud or self-dealing. Most, if not all, of the 
     affirmative acts that would form the basis for an FDIC suit 
     occurred more than two years before USAT failed.
     B. The Merits
       The law has also moved against us on the merits of the 
     claims. The claims against Hurwitz are more difficult than 
     usual because he was not an officer or director of USAT. We 
     believe that his involvement rose to the level of a de facto 
     director, and for some purposes a control person, but his 
     status presents a notable hurdle.
       Texas case law has essentially eliminated liability for 
     negligence in the name of applying a very expansive business 
     judgment rule defense. We believe the conduct here 
     constitutes gross negligence as that term is normally 
     defined. The law of gross negligence in Texas is currently 
     unsettled, but a recent decision by the Texas Supreme Court 
     announced a new standard of gross negligence that will be 
     very difficult to meet if it is applied to D&O cases. In 
     Transportation Insurance Company v. Moriel, 879 S.W.2d 10 
     (Tex. 1994), the Texas Supreme Court defined gross negligence 
     as constituting two elements: (1) viewed objectively from the 
     standpoint of the actor, the act or omission must involve an 
     extreme degree of risk, considering the probability and 
     magnitude of the potential harm to others, and (2) the actor 
     must have actual, subjective awareness of the risk involved, 
     but nevertheless proceed in conscious indifference to the 
     rights, safety, or welfare of others. That case involved a 
     bad faith claim against an insurer but the language of the 
     opinion is very broad. This new standard, if applied, 
     would make it very difficult, if not impossible, to prove 
     our claims.
       The effect of these recent adverse decisions is that there 
     is a very high probability that much or all of the FDIC's 
     conventional claims will not survive a motion to dismiss on 
     statute of limitations grounds. We would also be at increased 
     risk of dismissal, or loss at trial on the merits.
     IV. The Pacific Lumber--Redwood Forest Matter
       Any decision regarding Hurwitz and the former directors and 
     officers of USAT is likely to attract media coverage and 
     comment from environmental groups and members of Congress. 
     Hurwitz has a reputation as a corporate raider, and his 
     hostile takeover of Pacific Lumber attracted enormous 
     publicity and litigation because of his harvesting of 
     California redwoods. Environmental interests have received 
     considerable publicity in the last two years, suggesting 
     exchanging our D&O claims for the redwood forest. On July 21, 
     1995 we met with representatives of the Department of the 
     Interior, who informed us that they are negotiating with 
     Hurwitz about the possibility of swapping various properties, 
     plus possibly the FDIC/OTS claim, for the redwood forest. 
     They stated that the Administration is seriously interested 
     in pursuing such a settlement. We plan to follow us on these 
     discussions with the Department of Interior in the coming 
     weeks.
       If the Hurwitz tolling agreement expires without suit being 
     filed, we would recommend that we update those members of 
     Congress who have inquired about our investigation and make 
     it clear that this does not end the matter of Hurwitz's 
     liability for the failure of USAT because of the ongoing OTS 
     investigation.
       Theory of suit: The claims are for gross negligence, breach 
     of fiduciary duty and breach of the duty of loyalty. The 
     claims are:
       (1) USAT officers and directors, and Hurwitz as a de facto 
     officer and director, were grossly negligent in failing to 
     act to prevent $50 million of additional losses from USAT's 
     first MBS portfolio. The positions were in place more than 
     two years before failure. Our analysis indicates that they 
     should have begun to cut their losses, and wind down this set 
     of positions, starting two years before failure.
       (2) USAT officers and directors, and Hurwitz as a de facto 
     officer and director, were grossly negligent in causing USAT 
     to invest approximately $180 million in its subsidiary, 
     United MBS, leveraging the investment into $1.8 billion of 
     mortgage backed securities (``MSBS'') and losing 
     approximately $97 million, including interest, when USAT had 
     already suffered disastrous results in its first MBS 
     portfolio and was in a critically weakened financial state. 
     Approximately $80 million of the $180 million was advanced 
     within two years of the failure.
       (3) Hurwitz, as a de facto officer and director and 
     controlling person of USAT, breached his duties of loyalty to 
     USAT by failing to insist that UFG and Maxxam honor their net 
     worth maintenance obligations. While this breach may have 
     first occurred more than two years before failure, it was a 
     breach that continued and escalated within two years of 
     failure.
       Finally, the Park 410 loan, in which USAT lost 
     approximately $57 million, is included in the authority to 
     sue memo for informational purposes. This claim is based both 
     on repeated regulatory warnings and on actual approval, 
     before funding of a grossly imprudent loan that benefitted a 
     Maxxam insider. The claim on this transaction against bank 
     counsel, a long time Hurwitz business associate, is for 
     professional malpractice and breach of fiduciary duty and 
     aiding and abetting breaches of fiduciary duty. We believe 
     that it is a good claim on the merits, but we see no viable 
     basis under existing law for avoiding a statute of 
     limitations defense. Thus, we recommend against asserting 
     this claim.
       Assessment of Defenses: We expect business judgment rule 
     and standard of care defenses and serious statute of 
     limitations issues based on recent Fifth Circuit and other 
     Texas case law. Absent a change in the law, there is at least 
     a 70% chance that much or all of the claims relating to 
     mortgage backed securities and derivatives trading will be 
     dismissed based on the net worth maintenance agreements be 
     honored is more likely to survive statute of limitations 
     motions, but raises a series of different merits issues.
       Suit Profile: The suit will attract media and Congressional 
     attention because of Hurwitz's reputation in corporate 
     takeovers, and his ownership of Pacific Lumber, which is 
     harvesting redwoods. Environmental interests have received 
     considerable publicity, often suggesting exchanging these 
     claims for trees. The Department of Interior recently 
     informed us that the Administration is seriously interested 
     in pursuing such a settlement.
       Timing and cost-benefit analysis: We intend to use Hopkins 
     & Sutter (Chicago/Dallas) and the minority firm Adorno & 
     Zeder (Miami). The estimated cost of litigation by outside 
     counsel is $4 million up to trial, and an additional $2 
     million through trial. We have incurred outside counsel fees 
     and expenses of $4 million to date. In-house costs to date 
     are approximately $600,000. No insurance coverage appears to 
     be available. The proposed defendants have a combined net 
     worth of approximately $150 million (Exhibit A). If the case 
     survives the statute of limitations challenge, we still face 
     significant adverse caselaw in Texas on the standard of care 
     and the business judgment rule. For these reasons, there is 
     no better than a 50% probability of obtaining a substantial 
     judgment even if we survive statute of limitations defenses 
     in tact it would have an estimated settlement value of $20-40 
     million.
       If suit is authorized we would expect to offer Hurwitz one 
     final opportunity to toll. We would not sue the other 
     proposed defendants during 1995 if they leave their tolling 
     agreement with us and OTS in place.
       Contacts: Jeffrey Ross Williams, Counsel, (202) 736-0648; 
     Robert J. DeHenzel, Jr, Counsel, (202) 736-0685, PLS; Betty 
     Shaw, Investigations Specialist, Southwest Service Center, 
     (214) 851-3042.
       Concurrence:
       Date: July 27, 1995.
     William F. Kroener III,
       General Counsel.
     John F. Bovenzi, 
       Director, DDAS.

[[Page E2440]]


                     EXHIBIT A--PROPOSED DEFENDANTS
------------------------------------------------------------------------
               Name                       Positions          Net Worth
------------------------------------------------------------------------
Charles Hurwitz...................  Director of UFG (11/   $140MM
                                     10/83-2/11/88).
                                    UFG Executive          .............
                                     Committee (1983-2/11/
                                     88).
                                    President and CEO of   .............
                                     UFG (8/84-11/14/85).
                                    Chairman of the Board  .............
                                     of UFG (8/84-11/14/
                                     85).
                                    UFG/USAT Strategic     .............
                                     Planning Committee
                                     (1986 and 1987).
Barry Munitz......................  Director of USAT (8/   $3.4MM
                                     26/82-1988).
                                    USAT Executive         .............
                                     Committee (1982-
                                     1988; Chairman, 1985-
                                     1988).
                                    USAT Executive         .............
                                     Compensation
                                     Committee (1982-
                                     1985).
                                    USAT Investment        .............
                                     Committee 8/8/86-5/
                                     19/87; Chairman,
                                     1986).
                                    UFG/USAT Strategic     .............
                                     Planning Committee
                                     (1986 and 1987).
                                    Director of UFG (1983- .............
                                     1988).
                                    Chairman of UFG board  .............
                                     (1988).
                                    Chief Executive        .............
                                     Officer and
                                     President of UFG
                                     (1988).
                                    UFG Executive          .............
                                     Committee (1983-
                                     1988; Chairman, 2/14/
                                     85-1988).
                                    UFG Investment         .............
                                     Committee (1987).
                                    UFG Compensation       .............
                                     Committee (1983-
                                     1988).
Jenard Gross......................  Chairman of the Board  $7MM
                                     of USAT (2/14/85-
                                     1988).
                                    CEO of USAT (2/14/85   .............
                                     to 1988).
                                    President of USAT (1/  .............
                                     8/87 to 1988).
                                    USAT Executive         .............
                                     Committee (1986-
                                     1988).
                                    USAT Audit Committee   .............
                                     (11/10/87-1988).
                                    Chairman of USAT       .............
                                     Investment Committee
                                     (5/8/86-1988).
                                    USAT/UFG Strategic     .............
                                     Planning Committee
                                     (1986-1987).
                                    Director of UFG (1985- .............
                                     1988).
                                    President and CEO of   .............
                                     UFG (11/14/85-1988).
                                    UFG Executive          .............
                                     Committee (1985-
                                     1988).
Michael Crow......................  Executive VP (Fin/     Unknown
                                     Adm) and Chief
                                     Financial Officer of
                                     USAT (12/83-1988).
                                    Senior Executive VP    .............
                                     (Fin/Adm) of USAT (1/
                                     8/87-1988).
                                    USAT Executive         .............
                                     Committee (1988).
                                    USAT Investment        .............
                                     Committee (5/8/86-
                                     1988).
                                    USAT/UFG Strategic     .............
                                     Planning Committee
                                     (1986 and 1987).
                                    Director of UFG        .............
                                     (1988).
                                    CFO of UFG (1984-      .............
                                     1988).
                                    Senior VP of UFG (12/  .............
                                     83-1988).
                                    Net Worth Total......  $150MM
                                                          --------------
                                    Available Insurance..  $0
                                                          --------------
                                    Total Recovery         $150MM
                                     Sources.
------------------------------------------------------------------------

           Privileged and Confidential Attorney Work Product

       Chairman Helfer, Vice Chairman Hove, Director Ludwig, 
     Acting Director Fiechter, Mr. Geer, Mr. Mason, Mr. Hood, Mr. 
     Zemke, Mr. Jones, Mr. J. Smith, Mr. Rose, Mr. Thomas, Mr. 
     Graham, Mr. Newton, Mr. Whitney, Mr. O'Keefe, Mr. Taylor, Ms. 
     Anderson, Mr. Monahan.
     Memorandum to: Board of Directors, Federal Deposit Insurance 
         Corporation
     From: Jeffrey Ross Williams, Counsel, Professional Liability 
         Section
     Robert J. DeHenzel, Jr., Counsel, Professional Liability 
         Section
     Subject: United Savings Association of Texas Houston, Texas--
         In Liquidation Request for Authority to Initiate 
         Litigation
     I. Introduction
       United Savings Association of Texas (``USAT'') presents a 
     graphic picture of what can happen when: two hopelessly 
     insolvent thrifts are combined (resulting in USAT); 
     regulators/insurers (FHLBB, FSLIC and FHLB-Dallas) lack 
     resources to close the thrift; regulatory and general 
     accounting rules allow, if not encourage, financial reporting 
     that does not reflect economic reality, and there is a 
     controlling person (Charles Hurwitz (``Hurwitz'')) who (a) 
     understands the foregoing, (b) can obtain control of the 
     thrift by investing a nominal percentage of his assets ($7.8 
     million to control $3.3 billion), (c) has substantial 
     personal and corporate incentives to keep USAT open and under 
     his control regardless of its actual condition (e.g., to 
     maintain his ability to buy massive quantities of Drexel junk 
     bonds with no funding concerns or real risk to himself and 
     aid him in obtaining an $8 million bonus from another Hurwitz 
     controlled entity, Maxxam, Inc. (``Maxxam), and (d) could, 
     and did, recruit and motivate enough officers and directors 
     (the ``core group'') for USAT to assure that his goals were 
     promoted despite their cost to USAT--and, ultimately, the 
     American taxpayers.
       In addition to self-inflicted wounds, USAT was the victim 
     of a multimillion dollar fraud (by Couch Mortgage), and 
     suffered the effects of holding a portfolio of real estate 
     loans and investments in the collapsing Texas economy.
       Under Hurwitz's control, USAT made a large number of, at 
     best, questionable real estate loans, both made and lost 
     money on its junk bonds, and suffered huge losses on two 
     successful attempts to create paper profits through trading 
     mortgage backed securities (``MBS'') and instruments that 
     supposedly hedged the MBS.
       We recommend three basic claims: the first for $97 million 
     in (net) losses in the second MBS trading scheme, the second 
     for approximately $50 million in additional losses which 
     could have been avoided but were incurred with respect to the 
     institution's first MBS portfolio, and the third for in 
     excess of $150 million for failure to comply with net worth 
     maintenance obligations of USAT. While we believe that some 
     additional claims (involving losses on the first MBS 
     portfolio, a patently imprudent $32 million dividend by USAT, 
     grossly excessive salaries, and commercial lending losses) 
     could pass the Rule 11 test for good faith pleadings, our 
     conclusion based on the facts now known to us is that 
     ultimately we could expect to lose on those additional 
     claims under a gross negligence/Texas business judgment 
     rule standard. Consequently, such additional claims are 
     not recommended. We have also negotiated an agreement in 
     principle with United Financial Group, Inc. (``UFG''), 
     USAT's first tier holding company, to settle a separate 
     tax claim for approximately $9.6 million, which we hope to 
     finalize within the next 90 days.
     II. Background
       In 1982, Hurwitz, a well-known Houston investor active in 
     leveraged corporate acquisitions, acquired USAT in connection 
     with a merger of two Houston savings and loan holding 
     companies, namely, UFG which owned 100 percent of USAT, and 
     First American Financial of Texas (``First American''). From 
     the outset of the Hurwitz regime, USAT was in serious 
     financial trouble. It struggled with a portfolio of under-
     performing and non-performing loans; it had the burden of 
     $280 million in goodwill as a non-income producing intangible 
     asset; and it had severe internal control problems. USAT 
     survived only by taking gains from extraordinary and high 
     risk transactions.
       Hurwitz's acquisition of USAT obtained for him the 
     financial leverage available in a federally insured deposit 
     institution such as USAT and the assistance it would provide 
     to his takeover activities. He acquired control over USAT's 
     approximately $3.3 billion in assets through entities owned 
     and controlled by him for a $7.8 million investment. 
     Hurwitz's $7.8 million investment constituted 0.2% of USAT's 
     initial assets; the American taxpayers lost $1.6 billion--48% 
     of USAT's initial assets and 200 times Hurwitz's investment. 
     Hurwitz dominated the affairs of both USAT and the holding 
     company, leveraged the institution heavily, and, ultimately, 
     engaged in a series of grossly imprudent transactions--all at 
     little or no risk to himself.
       On December 30, 1988 USAT failed. At failure the 
     Association had assets of $4.6 billion; the loss to the FDIC 
     is estimated at $1.6 billion.
       This memorandum requests authorization to initiate 
     litigation against Hurwitz and three former directors and 
     officers of USAT. The proposed lawsuit seeks approximately 
     $300 million in losses incurred as a result of gross 
     negligence, breach of fiduciary duties of loyalty and care, 
     knowing participation in and aiding and abetting breach of 
     fiduciary duty and professional negligence. There is no 
     directors and officers' liability policy. The proposed 
     defendants have an aggregate net worth of approximately 
     $150 million.
       Absent a change from the current state of the law in the 
     Fifth Circuit on the statute of limitations, there is at 
     least a 70% chance that most or all of the case will be 
     resolved adversely to the FDIC on summary judgment or on a 
     motion to dismiss. If, the claims survive the statute of 
     limitations challenge, the odds of a favorable outcome remain 
     marginal at best because of adverse caselaw on the standard 
     of care and the business judgment rule.
       The admittedly high cost, high risk claims against Hurwitz 
     and the former directors and officers outlined in this 
     memorandum may result in a significant recovery. After 
     balancing the merits of the claims, the likely recovery 
     sources, and the fact that the statute of limitations defense 
     may be be tested early in the litigation, thus reducing the 
     likely cost if the litigation is ultimately unsuccessful on 
     that basis, we recommend that these claims be pursued.

[[Page E2441]]

     III. Theory of the Claims
       The proposed litigation consists of three claims which are 
     summarized briefly below and set out in more detail in 
     Section V, infra.
     A. Claims Against Hurwitz and the Core Group
       The claims against Hurwitz and the proposed officer and 
     director defendants will be based upon losses resulting from 
     USAT's decision to engage in two significant transactions, 
     each grossly imprudent: the investment of $180 million in a 
     USAT subsidiary, United MBS (``UMBS''), to facilitate what 
     were billed as risk controlled arbitrage activities (with 
     losses of approximately $97 million) and its failure to act 
     to prevent further losses in USAT's first MBS portfolio (with 
     losses of approximately $50 million). The third claim is 
     against Hurwitz only for failure to maintain the net worth 
     maintenance obligations of USAT.
     1. The $180 Million Investment in United MBS
       The claims against the proposed defendants for UMBS losses 
     are predicated upon strong warnings from regulators and 
     USAT's outside auditor concerning USAT's securities 
     investments, the defendants' knowledge of USAT's deep 
     financial trouble and USAT's disastrous mismanagement of and 
     demonstrated inability to control its MBS investment 
     portfolio. The theory of the claims against most of the 
     proposed defendants is twofold. First, the USAT Board was 
     grossly negligent in abdicating its supervisory role over the 
     investment affairs of the institution by failing to carefully 
     analyze, approve, and assure adequate controls on the 
     investment in UMBS. Second, certain directors and senior 
     officer members of the Executive Committee, Investment 
     Committee and Strategic Planning Committee (including 
     Hurwitz) were grossly negligent by virtue of their having 
     orchestrated the formation of UMBS, actively directed the 
     investments in UMBS and caused substantial USAT funds to be 
     lost due to UMBS's high risk trading strategies. Hurwitz, as 
     a de facto director and an active participant on the 
     Strategic Planning Committee, is liable under both theories. 
     The claims against Hurwitz, in addition to those set forth 
     above, are based on his knowing participation in and aiding 
     and abetting the officers and directors in the breach of 
     their duties.
     2. Failure To Prevent Further Losses From USAT's First MBS 
         Portfolio--Joe's Portfolio
       The claim against the proposed defendants arising from 
     USAT's first portfolio--Joe's Portfolio--is based on the 
     failure to take action in early 1987 to prevent exposing USAT 
     to further losses. Joe's Portfolio itself has been described 
     by one USAT analyst as a disaster. USAT set up the portfolio 
     without hedging against the risks of declining interest rates 
     and, when interest rates declined, USAT was left with 
     interest rate swap agreements requiring fixed interest 
     payments well in excess of the short term interest rate 
     payments USAT received in return. Rather than recognizing the 
     loss inherent in the swap agreements, USAT engaged in a 
     ``roll down'' strategy, replacing higher coupon MBSs with 
     more stable current coupon issues. The result was that USAT 
     ended up with MBSs yielding substantially less than the rates 
     USAT was required to pay on its swap agreements.
       By December 31, 1986, it was obvious that USAT's strategy 
     for Joe's Portfolio made no sense. The portfolio had a 
     negative spread and the low coupon MBSs exposed USAT to 
     substantial risk of loss in the event that interest rates 
     increased. Peterson Consulting has analyzed the portfolio and 
     concludes that USAT should have terminated the swaps and sold 
     the MBSs in January 1987. If it had done so, the ultimate 
     losses USAT suffered as a result of Joe's Portfolio would 
     have been reduced by approximately $50 million.
       The same members of the Investment Committee involved with 
     the UMBS claim, as well as Hurwitz, would be defendants on 
     the Joe's Portfolio claim and the legal theories would mirror 
     those on the UMBS claim.
     3. Net Worth Maintenance Obligation
       By virtue of his position as a de facto officer and 
     director and controlling person of USAT, Hurwitz owed to USAT 
     a duty of loyalty and a duty to protect and care for the 
     interests of the institution. By virtue of his position as a 
     Board member and officer at UFG and MCO (two of USAT's 
     holding companies), and as a director and control person of 
     Federated Development Company (``FDC''), Hurwitz was in a 
     position to cause these entities to honor their net worth 
     maintenance obligations to USAT. Hurwitz intentionally 
     disregarded these duties and, indeed, devoted considerable 
     efforts to helping UFG, MCO and FDC avoid these 
     responsibilities. The loss attributable to his breaches of 
     duty is in excess of $150 million.

                           *   *   *   *   *

       While we believe the entire USAT Board was grossly 
     negligent with respect to the UMBS investigation and Joe's 
     Portfolio, we do not and cannot recommend suit against all 
     Board members. Early in the course of the investigation of 
     the case, tolling agreements were entered into with officers 
     and directors who were perceived at the time to be key 
     players. Other officers and directors who were perceived to 
     be of less significance were not presented with tolling 
     agreements. With respect to those individuals with whom we 
     have tolling agreements, the selection of parties as 
     defendants in the UMBS and Joe's Portfolio claims has been 
     governed, principally, by four factors. The first is the 
     degree to which the proposed defendant was involved in the 
     transactions at issue. The second is the knowledge of the 
     affairs of the institution attributable to the proposed 
     defendant. The third is the extent to which the proposed 
     defendant was a member of the Hurwitz ``core group''. The 
     fourth factor is the degree to which pursusing a defendant 
     against whom legitimate claims now exist and is cost 
     effective. The application of those four factors to 
     individual defendants is set forth in Section V infra. 
     Finally, we did not propose suit against certain directors 
     who were not part of the ``core group,'' did not 
     personally benefit, and were otherwise in the same 
     position as others as to whom we had previously allowed 
     the statute of limitations to expire. We believe this 
     result is fair and that it is unlikely to change the 
     economics of the claim.
     IV. History and Regulatory Background
       
     A. Hurwitz's Control Over USAT
       Charles Hurwitz exercised control over most of the 
     activities of the Association. He was the key decision make 
     at the institution although he had not formal title at USAT. 
     In addition to the control conferred by his stock ownership 
     in UFG, Hurwitz acted as a de facto officer and director of 
     USAT--he was Chairman of UFG, which had virtually no 
     operations independent of USAT, and caused USAT to hold joint 
     USAT/UFG Board meetings, which he attended; he attended 
     certain Senior Loan Committee (``SLC'') meetings (including 
     the Park 410 meetings) and selected Investment and Executive 
     Committee meetings; and he was a member of the UFG/USAT 
     Strategic Planning Committee. Together with other officers 
     and directors of FDC and MCO (the Hurwitz entities which held 
     a substantial stock interest in UFG), Hurwitz devised and 
     approved USAT business strategies. He worked with other MCO/
     FDC employees to direct USAT's securities investments.
       Further, Hurwitz hand-picked certain prior business and 
     social friends for key positions at USAT to carry out his 
     plans for USAT, and hired others, paying them excessive 
     salaries despite their limited experience in the savings and 
     loan industry. The relationships these individuals had with 
     Hurwitz and the salaries USAT paid them compromised their 
     loyalty to the institution. This group of Hurwitz 
     associates--the ``core group''--included Crow, Munitz, 
     Kozmetsky, Gross, Berner, and Huebsch. Each of them held 
     positions not only with USAT but also the holding company, 
     UFG, and with MCO/FDC.
     B. The Drexel Connection
       A principal motive for Hurwitz's acquisition of USAT was 
     the potential assistance it could provide for his takeover 
     activities. The initial plan called for using USAT as a 
     merchant bank which would directly participate in hostile 
     takeovers. The first such effort was the attempted takeover 
     by MCO, FDC and USAT, of Castle & Cook (``C&C'') in late 
     1983. The use of federally insured funds in connection with 
     this activity resulted in litigation, unfavorable publicity 
     and criticism from FHLBB regulators. Ultimately, Hurwitz 
     abandoned the C&C takeover and thereafter utilized USAT to 
     support his takeover activities through less direct means.
       In 1984, Hurwitz entered into what appeared to be a quid-
     pro-quo arrangement with Drexel Burnham Lambert, Inc. 
     (``Drexel'') pursuant to which Drexel would assist Hurwitz's 
     takeover activities in exchange for USAT's investment in 
     Drexel underwritten junk bonds. This conclusion is supported 
     by the timing and nature of the trades and financings at USAT 
     and is consistent with Drexel's work with other lending 
     institutions. In 1992, USAT Director and Executive Committee 
     member Barry Munitz stated in an interview that an ongoing 
     relationship with Drexel was important to Hurwitz. According 
     to Munitz, Hurwitz needed to keep USAT open and free from 
     regulatory intervention in order to maintain his ``ticket-to-
     ride'' with Drexel, and refused to have other entities he 
     owned or controlled acquire a junk bond portfolio because of 
     the risk. We believe that many of the accounting driven gains 
     taken by USAT to artificially maintain net worth were 
     undertaken to avoid regulatory intervention and to ensure 
     that USAT would continue to provide Hurwitz with access to 
     Drexel--even at the cost of operating the institution at a 
     loss. USAT eventually became the eighth largest purchaser of 
     Drexel-underwritten junk bonds among all savings and loans 
     nationwide. By December 1986, 69% of USAT's entire junk 
     bond portfolio, valued at $444 million, was Drexel 
     underwritten.
       During this period, Drexel arranged junk bond funding for 
     Hurwitz's takeover activities and USAT purchased junk bonds 
     and other investments from Drexel. From 1984 through 1988, 
     Hurwitz obtained approximately $1.8 billion in junk bond 
     financing through Drexel for his takeover activities, and 
     USAT purchased approximately $1.8 billion of Drexel junk 
     bonds, and other Drexel brokered securities.
       Drexel also assisted Hurwitz's efforts to insulate his key 
     entities FDC and MCO from USAT net worth maintenance 
     obligations. In June 1983, FDC and MCO filed an application 
     with the FHLBB to acquire a controlling interest of as much 
     as 35 percent of UFG and thus to become a savings and loan 
     holding company (``SLHC'') for USAT. In December 1984, the 
     FHLBB approved the FDC/MCO application subject to the 
     condition that FDC/

[[Page E2442]]

     MCO maintain the net worth of USAT. That condition was 
     unacceptable to hurwitz, who engaged in extensive 
     negotiations with the FHLBB to attempt to eliminate or modify 
     that condition. These negotiations continued from December 
     1984 through at least 1987, but never resulted in an 
     agreement. During their pendency, Hurwitz, nonetheless, 
     appears to have increased FDC/MCO's control over USAT. At 
     December 31, 1984, Drexel appears for the first time as a 
     substantial shareholder of UFG, holding 585,371 shares (or 
     7.2 percent).
       In December 1985, Drexel and MCO entered into an option 
     with respect to 300,000 of the UFG shares held by Drexel. 
     Drexel had a right to put the shares to MCO in 1988 at a 
     premium over market. Drexel also received a substantial 
     option fee for entering into the transaction. Documents 
     produced by MCO's successor, Maxxam, indicate that the 
     transaction was structured to avoid the 25% ownership 
     threshold which would have obligated MCO/FDC to maintain 
     USAT's net worth. The agreement was extended in 1988 for no 
     consideration, to avoid Drexel putting UFG shares to MCO when 
     USAT already had admitted that it failed to meet minimum net 
     worth requirements. Drexel did not exercise its right to put 
     the shares to MCO until 1989, after USAT failed.
     C. The Economic Context For The Claims Against Hurwitz and 
         the Core Group
       The conduct of the defendants which will be the subject of 
     the proposed litigation must be evaluated in the context of 
     USAT's overall financial condition. From the outset of 
     Hurwitz's involvement with USAT, the institution faced 
     enormous financial challenges. Although its financial 
     statements reported capital in compliance with regulatory 
     requirements, the institution had a non-earning asset--
     goodwill--on its books arising from the First American 
     merger. This large (more than $280 million) intangible asset 
     exceeded USAT's total reported capital, leaving USAT with no 
     tangible capital on a liquidation basis. Moreover, the need 
     to amortize USAT's goodwill over time created a drag on 
     earnings for the foreseeable future. In addition to the 
     challenge presented by USAT's goodwill, by the mid-1980's the 
     institution also faced the impact of the decline in the Texas 
     real estate market, which threatened earnings from USAT's 
     real estate related assets and subjected the Association to 
     repeated increases in loan loss reserves.
       USAT management was well aware of the challenges it faced. 
     A memorandum from USAT's president, Gerald Williams, to 
     Hurwitz, dated April 12, 1985, stated that the ``biggest road 
     block to operational profit improvement'' was the 
     approximately $241 million of non-earning intangible asset of 
     goodwill. A memorandum from USAT's Chief Financial Officer, 
     Michael Crow, dated August 21, 1985, stated that ``we need to 
     put together a slide show . . . for Mr. Hurwitz as to why we 
     cannot make money at United Savings. . . . [explaining] why 
     our profitability is impaired by such things as goodwill 
     amortization, below market mortgage loans etc.''
     1. The Branch Sale and $32.6 Million Dividend
       With that as prologue, in 1984, USAT sold approximately 
     half of its branch network with the stated intention of 
     moving toward a ``wholesale strategy'' which would rely less 
     on traditional core deposits and home mortgage lending and 
     more on brokered deposits and other ``wholesale'' activities. 
     The branch sale resulted in a reported profit of $81 million. 
     Rather than either offsetting this gain against goodwill 
     (which was presumably based in large part on the franchise 
     value of the branch network) or leaving the additional 
     capital in USAT to absorb future goodwill amortization or 
     operational losses, USAT declared and paid a dividend of 
     $32.6 million to UFG. The Federal Home Loan Bank Board's 
     Supervisory Agent in Dallas expressed ``no supervisory 
     objection'' to the dividend because it fell within the limits 
     of the Bank Board's December 6, 1984 resolution, which 
     provided that UFG would not cause USAT to pay a dividend that 
     exceeded 50% of USAT's net income. The $32.6 million was 50% 
     of profits after USAT's $17 million operation loss was offset 
     against this extraordinary gain.) However, the Supervisory 
     Agent stated that ``this office is very concerned with the 
     Association's practice of selling branch offices to fund 
     upstream dividends, particularly in view of the Association's 
     $17.4 million net operating loss for fiscal year 1984''. The 
     Supervisory agent also stated that ``. . . we will continue 
     to closely monitor the Association's performance and will 
     take action if the Association's earnings and net worth 
     position begin to deteriorate.''
     2. Liability Growth in 1985
       USAT used the remaining 50% of its branch sale profit (and 
     the resulting increase in net worth) to support additional 
     growth during 1985. As USAT described the situation in mid-
     1985, the increased net worth from the branch sale provided 
     ``a foundation upon which to build a new United.'' The assets 
     acquired by the ``new United'' principally consisted of 
     mortgage-backed securities (``MBSs'') and ``corporate 
     securities''--most of which were junk bonds. By June 30, 
     1985, USAT had acquired $489 million of MBSs funded by 
     reverse repurchase agreements and $288 million of ``corporate 
     securities'' funded with brokered deposits.
       USAT's growth during the first half of 1985 resulted in an 
     increase in total liabilities in excess of the annualized 25% 
     rate for which prior approval by USAT's Principal Supervisory 
     Agent was required under 12 CFR Sec. 569.13-1(a)(1). USAT 
     failed to obtain prior approval. USAT's liability growth led 
     to a request by the Supervisory Agent on October 22, 1985 
     that USAT's Board execute a Supervisory Agreement under which 
     the association would be obligated to comply with the 
     liability growth regulation and provide a monthly report 
     concerning liability growth. After extended negotiations, 
     USAT agreed to limit its liabilities on December 31, 1985 to 
     $4.68 billion. USAT's Board adopted a resolution expressing 
     the agreement and a February 18, 1986 memorandum from a FHLBB 
     of Dallas Subvisory Agent to the Bank Board's Director of 
     Enforcement stated that ``United was in compliance at 
     December 31, 1985.''
     3. The Mortgage Backed Security Losses
       In 1985-1986 USAT engaged in a series of securities 
     transactions which seriously impaired the institution. These 
     transactions illustrated that the institution did not have 
     the desire, intent, or expertise to manage such a securities 
     portfolio properly.
       Even under the best of circumstances (i.e., the prospect of 
     earning a net spread of approximately 100 basis points on the 
     MBS portfolio), the MBS investment strategy could not 
     possibly have had a substantial impact on USAT's existing and 
     deepening problems due to its enormous goodwill carry and its 
     escalating losses on its non-performing real estate 
     portfolio. In practical terms, a 100 basis point spread on a 
     $500 million portfolio would yield an annual profit of $5 
     million. Before economic reality caught up with reported 
     results, USAT has reported extraordinary profits in this 
     portfolio of approximately $70 million through the end of 
     1986--while the ultimate result from this portfolio was an 
     approximately $190 million loss (approximately $110 million 
     in swap losses and $80 million in MBS losses) to USAT. USAT's 
     goal was simple--make every effort to deflect regulatory 
     concern by generating as much extraordinary profit as 
     possible, while deferring losses, in order to keep the 
     institution alive. Hurwitz's motive in directing this 
     strategy was that so long as the institution survived, it 
     could purchase junk bonds and Drexel could continue to 
     facilitate his other financial objectives.
     a. USAT Mortgage Finance
       Although USAT may have been in compliance with its 
     liability growth limit at the end of 1985, it achieved this 
     result by moving its growth to subsidiaries for which USAT 
     reported only its investment, not the individual assets and 
     liabilities of the subsidiaries. One of these subsidiaries, 
     USAT Mortgage Finance, Inc., was formed in late 1985 to 
     acquire $500 million of MBSs funded by reverse repurchase 
     agreements. Potential defendants state that USAT formed USAT 
     Mortgage Finance to be a ``finance subsidiary'' with the 
     understanding that its assets and liabilities would not have 
     to be reported on USAT's books. They further assert that USAT 
     quickly learned that the regulatory treatment it anticipated 
     would not be available and therefore sold $350 million of the 
     subsidiary's MBSs, paying off a like amount of reverse 
     repurchase agreement liabilities.
       The sale of USAT Mortgage Finance's MBSs resulted in a 
     realized $9.3 million gain in 1985, without which USAT would 
     have incurred a loss for the year. However, in real economic 
     terms, USAT's sale of the MBSs resulted in a loss because 
     USAT had acquired interest rate swaps to extend the duration 
     of the reverse repurchase agreement liabilities. The $9.3 
     million gain on the MBS sales was matched by a larger 
     unrealized locked in loss ($14.7 million) in the value of the 
     swap agreements. USAT did not recognize the loss inherent in 
     the swap agreements, but instead redesignated the swaps in 
     order to justify deferring the loss, and permit regulation of 
     it over the life of the agreements as payments were made 
     under the swaps. According to the workpapers of USAT's 
     outside auditors, Peat Marwick & Mitchell (``Peat 
     Marwick''), ``the forced sale of securities left an'' 
     ``imbalance'' between the securities portfolio and the 
     swap agreements. USAT explained to Peat Marwick that it 
     had then entered into a ``mirror swap'' with respect to 
     $230 million of the swaps in order to offset some of the 
     imbalanced position. The mirror swap locked in the 
     negative spread that USAT would have to pay over the life 
     of the agreements, provided they were not terminated (and 
     the loss taken) at an earlier date.
       USAT's transactions in USAT Mortgage Finance and its 
     accounting enabled USAT to report a gain from the transaction 
     without recognizing the corresponding loss on the interest 
     rate swap agreements. This highly aggressive (and disputed) 
     accounting treatment was approved by Peat Marwick. FDIC 
     retained Peterson Consulting to evaluate the transaction and 
     calculate the loss inherent in the swap agreements. Peterson 
     Consulting concluded that the ``implied market value loss'' 
     on the $230 million mirrored swap agreements was $9.6 million 
     and that, if the remaining $120 million of swap agreements 
     had been terminated, and transaction costs taken into 
     account, a loss of $5.1 million would have resulted. If these 
     losses had been recognized in 1985, they would have caused 
     USAT to report a $1,436,000 loss for the year and to report 
     net worth of $172,129,000, approximately $347,000 below the 
     association's required net worth at the end of the year.
       Thus, USAT entered 1986 with the knowledge that it had 
     narrowly avoided reporting a loss for 1985; that in economic 
     terms, it had incurred a loss on its swaps that, if 
     recognized, would have reduced its net worth to slightly less 
     than its regulatory requirement; and that its goodwill and 
     other real

[[Page E2443]]

     estate problems persisted and meant that, absent 
     extraordinary transactions, in the words of USAT's Chief 
     Financial Officer, ``we cannot make money at United 
     Savings.''
     b. The ``Roll Down'' of Joe's Portfolio
       In 1985, USAT itself made substantial investments in MBSs 
     in what became known as ``Joe's Portfolio,'' referring to Joe 
     Phillips, USAT's junk bond analyst who during this period 
     also had responsibility for managing the MBS investments. 
     After presentations by various investment banking firms 
     engaged in the business of selling such transactions to 
     savings and loans, USAT acquired MBSs, funded them with 
     reverse repurchase agreements, and entered into interest rate 
     swap agreements to effectively lengthen the maturity and 
     duration of the reverse repurchase liabilities. USAT's 
     description of the program in an October 28, 1985 letter to 
     USAT's Principal Supervisory Agent at the FHLB of Dallas 
     noted that the asset/liability match ``virtually locks in a 
     spread between United's asset yield and funding cost.''
       USAT's program was seriously flawed from the beginning. The 
     interest rate swaps locked in a funding cost of approximately 
     11%, which generated a positive spread when compared with the 
     original MBSs in the portfolio having a yield of slightly 
     over 12%. But the home mortgages underlying the MBSs were 
     subject to prepayment at the option of the mortgagors. 
     Shortly after USAT acquired the MBSs for Joe's portfolio, 
     interest rates plunged, with the five year Treasury rate 
     falling from 10.88% in April, 1985 to 7.14% in April 1986, 
     giving homeowners an incentive to refinance their mortgages. 
     As a result, USAT found that the MBSs were prepaying at a 
     much faster rate than had originally been estimated, 
     depriving USAT of the high yielding assets which were needed 
     to cover the 11% funding cost on the interest rate swaps.
       USAT reacted to the accelerating prepayments by attempting 
     to sell the high yielding MBSs at a gain before they prepaid 
     and purchasing replacement MBSs at current coupon rates. The 
     theory of this ``roll down'' strategy apparently was to 
     acquire more stable MBSs that would be less likely to prepay, 
     eroding the assets in the portfolio. However, USAT continued 
     this roll down strategy long after it ceased to make sense. 
     As interest rates declined USAT continued to sell MBSs at a 
     gain and to reinvest in current coupon MBSs, even though 
     the new MBSs yielded less than the locked in funding cost 
     on the interest rate swaps. When interviewed about the 
     events of early 1986, Joe Phillips did not recall that 
     USAT had continued the roll down strategy after it had 
     become futile, but conceded that rolling down to MBSs 
     which yielded a negative spread (after taking into account 
     the gains realized) made no sense.
       USAT's decision to roll down to lower coupon MBSs, rather 
     than to ``unwind'' Joe's Portfolio may have been a conscious 
     decision to expose USAT to a risk of even larger losses in 
     the future in order to avoid immediate recognition of the 
     losses inherent in the interest rate swap agreements USAT had 
     entered into in connection with Joe's Portfolio. Had USAT 
     admitted its error in structuring Joe's Portfolio and decided 
     to unwind it, using the proceeds from MBSs to repay reverse 
     repurchase agreement lenders, it would have been left with 
     the adverse interest rate swap agreements alone. There were 
     large imbedded losses in these swaps that would have to have 
     been recognized if they had been terminated.
     4. Notice of Significant Problems To The Board Members and 
         Senior Officers
       From 1984 through 1986 the officers and directors of USAT 
     were clearly advised by regulators and outside auditors of 
     significant problems at USAT. They took no steps, however, to 
     assert control over the institution. Thus:
       The Board as a whole was advised early in USAT's history of 
     significant problems in the Assosciation's real estate 
     portfolio. In January 1985, the entire Board was advised by 
     Texas regulators that (a) scheduled items had grown 
     dangerously and exceeded the Association's net worth 
     ($153.7MM in scheduled items constituting 105% of net worth 
     and 4.4% of assets), (b) the appraisal practices at USAT were 
     suspect, and (c) ``significant'' increases in loss reserves 
     would be forthcoming.
       In February 1985, the Board acknowledged receipt of the 
     Texas Savings and Loan Department's warnings concerning the 
     growth of scheduled items at the Association and promised to 
     monitor such matters more closely. Yet, in the same month, 
     the Board, for the first time, delegated loan approval up to 
     $70 million to the SLC in an act of remarkable abdication of 
     control over USAT's real estate lending.
       From 1984 through 1986, the Board and the Audit Committee 
     of the Board were repeatedly advised by the Association's 
     outside auditors that the ADC lending was a significant 
     problem at the Association and that the Association's 
     appraisal practices were deficient. Indeed, on the very day 
     the Park 410 loan was approved by the Board, the Audit 
     Committee met with outside auditors and were advised again of 
     problems with the Association's appraisal practices.
       Throughout 1985 and 1986 Board packets forwarded to members 
     of the Board for quarterly meetings clearly indicated the 
     growing danger that ADC lending posed to the institution and 
     the rapidly rising rate of foreclosures in the portfolio.
       Throughout 1986 the Board was advised by either Peat 
     Marwick or by the Investment Committee (Board members 
     received copies of Investment Committee minutes) that the 
     significant increase in securities trading had yielded 
     serious internal control problems, and that the MBS portfolio 
     was seriously distressed.
       Board members were advised in February 1986 that the income 
     of the UFG Group was plummeting and that the accounting gains 
     taken by USAT from MBS trading may not reflect ``real'' 
     results.
       The April 1986 Texas Examination and the May 1986 FHLB 
     Examination reported that the institution had significant 
     securities investment problems, a staggering substandard 
     assets problem, and was as much as $20 million below its 
     regulatory capital requirements. These findings were not 
     formally communicated to USAT's Board until 1987, but 
     regulators had periodic discussions with senior management on 
     these items during the summer of 1986.
       The claims against Hurwitz and the core group must be 
     viewed against this background. By 1986 it was readily 
     apparent to the officials of USAT that the institution's 
     viability was in doubt. Yet within a four month period in 
     1986 (May to August) USAT approved major transactions with 
     extraordinary and unacceptable risk. These activities 
     evidence blatant disregard for the officers' and directors' 
     duties to the institution and illustrate the degree to which 
     certain members of the Board deferred to the interests and 
     goals of Charles Hurwitz. Both of the transactions 
     underlying our proposed claima display a common thread--
     namely, the willingness of USAT's officials to commit 
     substantial resources regardless of obvious long term risk 
     of loss so long as there was a potential for reporting 
     short term gains. The decisions to make the Park 410 loan, 
     to invest in UMBS and the failure to act with respect to 
     Joe's Portfolio each results in substantial losses and 
     cannot be defended as business judgments.
     V. Discussion of Claims
     A. MBS Transactions
     1. Formation and Operation of UMBS
       In late 1986 USAT decided to form a subsidiary--UMBS--to 
     engage in what was billed as leveraged MBS ``risk'' 
     controlled arbitrage.'' Either the attempts to hedge the 
     portfolio were grossly deficient or there were a series of 
     largely unhedged rolls of the dice or UMBS was used to put on 
     a massive--almost $2 billion--straddle. That is, UMBS was set 
     up so that no matter how interest rates moved there would be 
     large gains and large losses in its portfolio. UMBS took its 
     profits--to allow USAT to report profits--and let its losses 
     run. The reported profits were approximately $60 million 
     through December 1988, while actual accounting losses at 
     liquidation were approximately $125 million.
       USAT invested approximately $180 million in the UMBS, 
     leveraged the investment into a $1.8 billion portfolio of 
     MBSs and ended up losing about $97 million, taking into 
     account the cost of the funds invested. Although we do not 
     recommend naming all the Board members as defendants, we 
     believe the entire Board abdicated its responsibility to 
     adequately supervise USAT when it failed to consider, 
     approve, or control the risk inherent in the $100 million 
     investment in UMBS. The decision by certain directors and 
     officers to invest in UMBS and engage in these activities was 
     grossly negligent. The risk of the UMBS investment was 
     especially obvious and totally imprudent in light of USAT's 
     disastrous experience with its first ``risk-controlled'' MBS 
     portfolio, particularly in light of USAT's weakened financial 
     condition. The decision was a breach of the defendants' 
     fiduciary duties of loyalty because its purpose was to extend 
     the life of USAT for the benefit of Hurwitz's interests 
     regardless of cost or risk. Moreover, once the investment was 
     made, USAT's Investment Committee authorized UMBS to engage 
     in speculative strategies, gambling that large profits could 
     be achieved, without hedging to protect USAT's investment in 
     the event that the strategies failed. The authorization of 
     these strategies was grossly neglient and a breach of the 
     defendants' fiduciary duty of loyalty.
       USAT's Board members were advised by Peat Marwick in early 
     1986 of internal control problems and a steep rise in 
     securities activities. They were also advised through 
     Investment Committee minutes that USAT's MBS trading was in a 
     confused and troubled state. Remarkably, despite this, and in 
     what appears to be another total abdication of 
     responsibility, the Board never considered or voted upon 
     resolutions authorizing the investment of any specific amount 
     in UMBS, much less the $100 million initially invested in 
     UMBS. The failure of Board members Munitz and Gross (who were 
     members of Hurwitz's core group) to act to protect USAT from 
     these investment strategies, to take steps to control USAT's 
     MBS activities and to prevent the initiation of a new, even 
     larger phase of such activities, warrants proceeding against 
     them. Although Kozmetsky was a Board member and a member of 
     Hurwitz's core group, we do not recommend naming him as a 
     defendant.
       The formation of UMBS was approved by USAT's Executive 
     Committee at a meeting on August 7, 1986 but there was no 
     recorded discussion at the meeting of the size of the 
     investments to be undertaken by USAT in UMBS. Certain Hurwitz 
     core group members, however, were aware of the magnitude of 
     the UMBS investment by early September. Materials prepared 
     and distributed for a September 15, 1986 Strategy Meeting 
     (attended by Hurwitz, Gross, Munitz, Crow and others)

[[Page E2444]]

     include a recommendation to increase assets through 
     service corporations which will purchase MBSs and hedge 
     against interest rate risk. The materials mention a $100 
     million advance to a service corporation (presumably UMBS) 
     and a related asset increase of $1 billion. A memorandum 
     dated October 6, 1986 to Crow, Phillips, Sandy Laurenson 
     (who was hired to manage the UMBS portfolio) and others 
     (with copies to Gross and others) states that a new 
     subsidiary had been established and capitalized at $100 
     million to be utilized for Sandy Laurenson's new MBS 
     arbitrage activities. Thus, Hurwitz, Gross, Munitz and 
     Crow, as well as lower level officials at USAT, knew by 
     October 6, 1986 that a $100 million investment was 
     contemplated and Hurwitz, Gross, Munitz and Crow must have 
     by then reached the decision to make the investment.
       This decision was made at a time when USAT was in extreme 
     financial difficulty. The materials distributed at the 
     September 15, 1986 Strategy Meeting contain projections that, 
     with no changes in interest rates, USAT would lose between 
     $40 million and $60 million in each of the next three years 
     and that USAT had a negative liquidation value of $431.2 
     million. The materials further concluded that growth and 
     capital were both needed ``to restore the viability'' of USAT 
     and that, before 1987 (when capital rules were to change), 
     growth ``must occur through subsidiaries.'' Shortly before he 
     left USAT, in a memorandum dated November 24, 1986, Gerald 
     Williams wrote to Hurwitz, Gross and Crow stating that USAT's 
     ``base operation'' was losing money at a rate of $77 million 
     a year, up from $40 million in 1985.
       We propose to also file suit against Munitz, Gross, Hurwitz 
     and Crow on the theory that the decision to invest in UMBS 
     was grossly negligent given USAT's enormous losses from based 
     operations (making new high risk investments inappropriate), 
     given the adverse financial consequences USAT experienced 
     from its investment in Joe's Portfolio and which were at high 
     risk of being repeated by UMBS, and given the fact that USAT 
     was no longer viable at the time of the investment. Hurwitz, 
     Munitz, Gross and Crow were present at the September 15 
     strategy meeting when the magnitude of the investment--$100 
     million--was revealed and presumably approved. De facto 
     director Hurwitz encouraged the UMBS activities and knowingly 
     participated in and aided and abetted the other defendants' 
     violations of their duties.
       After UMBS was formed, USAT's Investment Committee 
     supervised the investment, authorizing the various high risk 
     strategies that exposed USAT's investment to loss. Munitz, 
     Gross and Crow were senior executives of USAT and members of 
     the Investment Committee that approved these strategies. The 
     Investment Committee also failed to follow USAT's stated 
     goals for the UMBS investment. USAT's stated goal for the 
     UMBS portfolio, as indicated by an attachment to the November 
     12, 1986 Investment Committee minutes, was to ``[b]uy high 
     coupon FHLMC's (10's--12's) and hedge assets and financing 
     for 1 to 2 years.'' A formal Statement of Purpose for UMBS 
     indicates that the arbitrage investment had a ``a two year 
     time horizon'' and that GNMA put options would be used to 
     hedge ``the potential cash shortfall if the asset disposal 
     does not cover the liability retirement.'' Despite these 
     statements, Sandy Laurenson, who was hired to manage UMBS, 
     has admitted that USAT did not follow the Statement of 
     Purpose for the subsidiary. Instead, with the full 
     knowledge and approval of the Investment Committee, USAT, 
     through Laurenson, engaged in a leveraged ``roll of the 
     dice'' in her management of UMBS. The principal goal was 
     to take the risks necessary to generate substantial 
     profits which would maintain USAT's capital. That goal was 
     pursued even though it exposed USAT to capital losses when 
     interest rates increased, and jeopardized the positive 
     spread the portfolio was supposed to generate.
       Records concerning the operations of UMBS bear out 
     Laurenson's statements. Contrary to the Statement of Purpose, 
     UMBS did not purchase enough GNMA puts options to protect the 
     value of its MBSs in the event that interest rates increased, 
     as they did from April through September 1987. The GNMA puts 
     options UMBS acquired were apparently exercised for a gain of 
     $3.6 million--much less than the loss on the MBSs. The GNMA 
     put options were replaced with additional asset hedges--
     Treasury note futures options--but they were either acquired 
     too late or in an insufficient amount to offset the loss on 
     the MBS assets. The result of UMBS's inadequate asset hedges 
     was a loss in market value of the assets of UMBS of 
     approximately $140 million. Because the liquidation took 
     place within the approximate time frame outlined by USAT for 
     the investment--2 years--and hedges adequate to protect the 
     value of the MBSs were not in place, USAT incurred losses on 
     its investment in UMBS of at least $64.9 million (plus 
     interest).
       The UMBS operation involved enormous risks, which Laurenson 
     understood and which she says she disclosed to members of the 
     Investment Committee and Hurwitz in their weekly meetings. 
     The decision to undertake those risks was reckless and 
     grossly negligent. The result was that, when USAT's 
     investment in UMBS was finally terminated by subsequent 
     management, $172,171,894 of USAT cash was invested in UMBS's 
     operations and USAT recovered only approximately $107,330,000 
     of cash, resulting in an ``out of pocket'' loss of 
     $64,997,000. If the cost of financing USAT's investment in 
     UMBS at the average rate paid on USAT's deposits is added to 
     this ``out of pocket'' loss, USAT incurred a loss of 
     $97,645,000.
     2. Failure to Prevent Further Losses From Joe's Portfolio
       The decision to invest in Joe's Portfolio without hedging 
     against the risks of declining interest rates left USAT with 
     interest rate swap agreements requiring fixed interest 
     payments well in excess of the short term interest rate 
     payments USAT received in return. Rather than recognizing the 
     loss inherent in the swap agreements, USAT engaged in its 
     ``roll down'' strategy with the result that USAT acquired 
     MBSs yielding substantially less than the rate USAT was 
     required to pay on its swap agreements. Peterson Consulting 
     has analyzed USAT's portfolio and the roll down strategy and 
     has concluded that, by the end of 1986, USAT had a negative 
     spread on Joe's Portfolio, even taking into account the gains 
     realized from the sales of high coupon MBSs.
       Although USAT's internal systems did not produce 
     comprehensive reports reflecting the status of Joe's 
     Portfolio and the risks it presented, numerous internal USAT 
     memoranda reflect the knowledge of senior executives by mid-
     1896 that Joe's Portfolio had turned into a major problem 
     posing substantial risks for the future. A January 24, 1986 
     memorandum from Gross to Gerald Williams questioned whether 
     the MBS sales were ``honest to goodness sales that still 
     leave us with the same yield that we had before'' or whether 
     ``we have penalized our profits for the next five to ten 
     years on our portfolio to take that profit.'' Gross wrote to 
     Huebsch and Gerald Williams on February 6, 1986, noting that 
     if you replace a 12\1/2\% MBS with an 11\1/2\% MBS ``and 
     still have to match it up with the same swaps that you 
     originally had on, it appears to me that you have worsened 
     your position.''
       By July 1986, it should have been clear to all of USAT's 
     senior management that something was seriously wrong with 
     Joe's Portfolio. USAT had engaged Smith Breeden as outside 
     consultants to analyze the interest rate sensitivity of USAT. 
     The preliminary conclusion was that USAT had positioned 
     itself so that, whether interest rates increased or 
     decreased, USAT was certain to lose money. Peterson 
     Consulting has reviewed USAT's report of Smith Breeden's 
     analysis and concludes that it demonstrates the failure of 
     USAT's investment, trading and hedging strategies. USAT had 
     produced a portfolio that would generate a negative interest 
     spread and that would lose money whether rates went up or 
     down. According to Peterson Consulting, a successful program 
     would have produced a positive spread while at the same time 
     protecting USAT from loss in the event of significant changes 
     in interest rates.
       By virtue of reports from USAT's outside auditors Peat 
     Marwick and performance reports from senior management, by 
     the fall of 1986, the full USAT Board also should have known 
     that something was wrong with USAT's MBS portfolio which 
     merited close attention. In January 1986, the Board of 
     Directors was advised by Peat Marwick that there had been a 
     significant increase in securities trading in 1985. Peat 
     Marwick warned that the increased activity and addition of a 
     trading room had caused deficiencies in internal accounting 
     controls, including (i) policies and procedures with respect 
     to such activity had not been established; (ii) internal 
     trading tickets were not completed properly; and (iii) timely 
     listing of the Association's securities positions were not 
     properly maintained. In October 1986, the Audit Committee was 
     advised by the auditors that the investment in mortgage 
     backed securities at the Association had grown exponentially 
     and that ``significantly'' all MBS securities had been sold 
     and replaced with lower yielding securities ``with slower 
     pre-payment experience to better match the maturities of the 
     Association's liabilities.'' Indeed, through a May 2, 1986 
     performance report to the Board, the Board was apprised of 
     the fact that the yield on higher coupon mortgage backed 
     securities had deteriorated relative to that of lower coupon 
     mortgage backs because of increasing speed of prepayment on 
     the higher coupon securities. Management informed the Board 
     that, in order to protect unrealized gains on the mortgage 
     backed securities, the Investment Group had sold the higher 
     coupon securities and replaced them with lower coupon 
     securities, thus reducing net interest spreads. By a 
     performance report dated August 5, 1986, the Board was 
     informed that net interest income of $3.6 million fell short 
     of the planned $7.2 million primarily because of the reduced 
     spread on mortgage backed securities. In November and 
     December 1986, performance reports to the Board reported 
     posted losses for October and November of $7.2 million and 
     $16.5 million, respectively, and increase in year to date 
     interest rate swap expenses of $28.7 million and $32.5 
     million, respectively.
       By December 31, 1986, USAT's problems with its swaps and 
     low coupon MBSs were so obvious that Hurwitz and his core 
     group of executives and directors should have addressed them. 
     Peterson Consulting has analyzed the status of Joe's 
     Portfolio as of December 31, 1986 and concludes that steps 
     could have been taken that would have reduced the losses 
     USAT ultimately incurred.
       By December 31, 1986, USAT held relatively low yielding 
     MBSs and high cost swaps. By holding the low yielding MBSs, 
     without any

[[Page E2445]]

     hedges to protect against loss in the event that interest 
     rates increased, USAT exposed itself to losses in the future 
     if interest rates increased. In fact, rates did increase 
     beginning in April 1987, and the ultimate sale of the MBSs 
     from Joe's Portfolio resulted in a loss of $107 million. Even 
     after deducting $12 million of gains USAT extracted from the 
     portfolio after December 31, 1986, and taking into account 
     the spread between the yield on the MBSs and the repos 
     funding them, USAT still lost about $80 million on the MBSs 
     from Joe's Portfolio. If the MBS portfolio had been sold on 
     December 31, 1986, a gain of approximately $9 million would 
     have resulted. Thus, USAT's failure to act on December 31, 
     1986, increased USAT's MBS losses by about $89 million.
       When both the swaps and the MBSs from Joe's Portfolio are 
     taken into account, the net loss incurred by USAT as a result 
     of its failure to liquidate Joe's Portfolio on or about 
     December 31, 1986, was about $51 million. Peterson Consulting 
     has concluded that the swap agreements could have been 
     terminated at a cost of $149 million on December 31, 1986. By 
     not terminating the agreements, USAT ended up making $52 
     million of net payments on the swaps until they were 
     terminated at a cost of about $59 million, or a total loss 
     after December 31, 1986 of about $111 million. Arguably the 
     failure to terminate the swaps on December 31, 1986 reduced 
     USAT's swap losses by approximately $38 million. Even after 
     taking into account that the swap loss would have been $38 
     more had USAT liquidated the portfolio and terminated the 
     swaps on December 31, 1986, the MBS loss would have been $89 
     million less, resulting in net losses of $51 million 
     attributable to USAT's refusal to face up to the problem of 
     Joe's Portfolio.
       We propose to assert a claim against Investment Committee 
     members and attendees Hurwitz, Gross, Munitz and Crow for 
     gross negligence for failure to address the problems with 
     Joe's Portfolio on or about December 31, 1986. We will also 
     contend that their failure to address the problem was a 
     breach of their fiduciary duty of loyalty because it was 
     intended to extend the life of USAT by forestalling the 
     regulatory intervention that might have resulted if the swap 
     loss had been recognized on December 31, 1986 or early in 
     1987. We will allege that Hurwitz is liable as a de facto 
     director and that he aided and abetted the other defendants 
     in the violations of their duties.
     2. Net Worth Maintenance: Breach of the Duty of Loyalty 
         Aiding and Abetting Breach of the Duty of Loyalty a. 
         Hurwitz Owed A Duty Of Loyalty To USAT
       By virtue of his position as a de facto officer and 
     director and controlling person of USAT, Hurwitz owned to 
     USAT a duty of loyalty and a duty to protect and care for the 
     interests of the institution. By virtue of his position as a 
     Board member and officer at UFG and MCO (two of USAT's 
     holding companies), and as a director and control person of 
     Federated Development Company (``FDC''), Hurwitz was in a 
     position to cause these entities to honor their net worth 
     maintenance obligations to USAT. Hurwitz intentionally 
     disregarded these duties and, indeed, devoted considerable 
     efforts to helping UFG, MCO and FDC avoid these 
     responsibilities.
     b. UFG's, MCO's and FDC's Net Worth Maintenance Obligation
       In early 1982 Hurwitz began to acquire UFG shares through 
     companies he owned and controlled, including MCO Holdings, 
     Inc. (``MCO'') and Federated Development Company (``FDC'') or 
     by having close colleagues acquire the stock. By mid year, 
     Hurwitz owned effective control of UFG, but held slightly 
     less than 25% of its outstanding shares. In August 1982 
     UFG agreed to merge with First American Financial of 
     Texas. The Bank Board approved the merger effective April 
     29, 1983 and First American's insured subsidiary was 
     merged into USAT. As part of the merger, UFG, as USAT's 
     holding company, was required by the Bank Board to enter 
     into an agreement whereby UFG agreed to maintain the net 
     worth of USAT as required by federal regulation. 
     Resolution No. 83-252 of the FHLBB, imposed the following 
     terms, among others, on UFG:
       [T]he subject acquisition [is] hereby approved, provided 
     that the following conditions are complied with in a manner 
     satisfactory to the [FHLBB's] Supervisory Agent at the 
     Federal Home Bank of Little Rock (``Supervisory Agent''):
       ``6. Applicant shall stipulate to the [Federal Savings and 
     Loan Insurance Corporation] that as long as it controls the 
     Resulting Association [United Savings], Applicant shall cause 
     the net worth of the Resulting Association to be maintained 
     at a level consistent with that required by Section 563.13(b) 
     of the Rules and Regulations for Insurance of Accounts, as 
     now, and hereafter in effect, of institutions insured 20 
     years or longer and, as necessary, will infuse sufficient 
     additional equity capital, in a form satisfactory to the 
     Supervisory Agent, to effect compliance with such 
     requirement.''
       On October 31, 1983 USAT and UFG caused to be delivered to 
     the Federal Home Loan Bank a written net worth maintenance 
     commitment. The commitment was signed by the Chairman of the 
     Board of UFG and stated:
       ``[The] Chairman of United Financial Group, Inc., [does] 
     hereby stipulate that as long as United Financial Group, Inc. 
     controls United Savings Association of Texas, it will cause 
     the net worth of United Savings to be maintained at a level 
     consistent with that required by Section 563.13(b) of the 
     Rules and Regulations for Insurance of Accounts, as now or 
     hereafter in effect, of institutions insured 20 years or 
     longer, and, as necessary, will infuse sufficient additional 
     equity capital, in a form satisfactory to the Supervisory 
     Agent, to effect compliance with such requirement.''
       Pursuant to the commitment, UFG agreed that it would infuse 
     equity capital in a form satisfactory to the Supervisory 
     Agent to maintain compliance with regulatory net worth 
     requirements.
       On June 29, 1983, MCO and Federated filed an application 
     with the Bank Board for approval to acquire control of USAT 
     through the acquisition of up to 35% of UFG's shares. On 
     December 6, 1984, the Bank Board granted conditional approval 
     of the application of MCO and Federated to acquire control of 
     USAT. The condition the Bank Board imposed on MCO's and 
     Federated's acquisition of control was that; ``for so long as 
     they directly or indirectly control United Savings, [MCO and 
     Federated] shall contribute a pro rata share based on their 
     UFG holdings, of any additional infusion of capital . . . 
     that may become necessary for the insured institution to 
     maintain its net worth at the level required by the 
     Corporation's Net Worth Regulation.''
       In 1985 MCO entered into an option agreement with Drexel 
     Burnam Lambert Group (``Drexel''), which gave UFG the right 
     to ``call'' and Drexel the right to ``put'' the 7 percent of 
     UFG's stock held by Drexel. When combined with its other 
     holdings, control of this additional stock caused its total 
     holding in UFG to exceed the 25% threshold. We believe that 
     this transaction made the net worth maintenance obligation of 
     the Board's resolution applicable to MCO (a predecessor of 
     Maxxam) and FDC. Our understanding of Maxxam's position is 
     that (1) since neither it nor its predecessor ever signed 
     a separate net worth maintenance agreement it had no such 
     obligation, and (2) because it did not become the legal 
     owner of this Block of stock until after USAT failed, it 
     never exceeded the 25 percent threshold.
     c. Hurwitz Dominated USAT, UFG, MCO and FDC
       Hurwitz was the controlling force of USAT, UFG, MCO and 
     FDC. He was Chairman of the Board of MCO and it largest 
     stockholder. He was the Chairman of the Board of UFG. He also 
     served as UFS's President and Chief Executive Officer. He was 
     a member of UFG's Executive Committee and the UFG/USAT 
     Strategic Planning Committee. Hurwitz was also a de facto 
     director and senior officer of USAT. He functioned as an 
     active member of the Board, if not its de facto director and 
     senior officer of USAT. He functioned as an active member of 
     the Board, if not its de facto chairman. He directed and 
     controlled USAT's investment activity; he regularly attended 
     Board and Committee meetings; he selected USAT officer and 
     directors; he controlled and dominated virtually all of 
     USAT's activities. No significant decision concerning USAT's 
     affairs was undertaken without his approval.
       Hurwitz controlled the affairs of USAT both through direct 
     particpation and through the actions of a core group of USAT 
     officers or directors (``the core group''), which included 
     Barry Munitz (USAT Director), George Kozmetsky (USAT 
     Director), Jenard Gross (USAT 's Chief Executive Officer), 
     Michael Crow (USAT's Chief Financial Officer), Arthur Berner 
     (USAT's Executive Vice President and General Counsel) and 
     Ronald Huebsch (USATs Executive Vice President for 
     Investments). Many members of the core group held positions 
     not only with USAT but also with UFG and MCO. Barry Munitz 
     (``Munitz'') was a director of MCO. He was also a director of 
     UFG from 1983 through 1988 and served on UFG's Executive 
     Committee from 1983 and 1988. He was Chairman of the UFG 
     Executive Committee from February, 1985 through 1988. Jenard 
     Gross (``Gross'') was a member of the UFG Board of Directors 
     from 1985 through 1988. He was President and Chief Executive 
     Officer of UFG during the same time period. Michael Crow 
     (``Crow'') was a director of UFG in 1988 and the Chief 
     Financial Officer of UFG from 1984 through 1988. Arthur 
     Berner (``Berner'') became director of UFG in 1988 and served 
     on UFG's Executive Committee. George Kosmetsky was a director 
     of MCO and UFG. He also served on UFG's Audit Committee.
     d. USAT's Net Worth Deficiency
       From the outset of Hurwitz's involvement with USAT, the 
     institution was deeply troubled. Under his control, it grew 
     steadily worse. As the institution's financial health 
     plummented and its net worth declined, USAT Board members 
     serving at his request undertook greater and greater risks. 
     Rather than recognize USAT's problems and confront them 
     constructively, Hurwitz, through these USAT officers and 
     directors (a) dramatically increased the liabilities of the 
     Association in violation of federal law, (b) gambled on 
     large, cumbersome real estate projects with no realistic 
     chance of success, and (c) invested in complex financial 
     instruments which investments were manipulated to produce 
     reported profits while in fact generating multimillion dollar 
     losses to USAT.
       To avoid being called upon to comply with the obligation of 
     UFG, MCO and FDC to maintain the net worth of USAT, Hurwitz 
     and his colleagues covered up the true state of the 
     Association by a pattern of deceptive financial reporting and 
     balance sheet manipulation. Gains were taken on certain 
     securities transactions, while losses were left

[[Page E2446]]

     imbedded in the portfolio; subsidiaries were used to skirt 
     liability restrictions; losses on real estate investments 
     were repeatedly understated; and maturity matching credits 
     were manufactured. The effect was to artificially maintain 
     the reported net worth of USAT to protect the assets of UFG, 
     MCO and FDC at the expense of USAT.
       Throughout much of 1987 and throughout 1988, even USAT's 
     reported capital did not meet minimum regulatory standards. 
     This resulted, in substantial measure, from the gross 
     mismanagement of USAT for which Hurwitz was responsible. On 
     May 13, 1988, the Bank Board advised USAT and UFG that USAT 
     did not meet its regulatory capital requirements as of 
     December 31, 1987. The Bank Board directed UFG and UFG's 
     Board to infuse capital sufficient to meet those 
     requirements. UFG refused to abide by the written commitment 
     to maintain USAT's net worth. Similarly, MCO failed to infuse 
     additional capital in accordance with its obligation.
       Hurwitz took no steps to encourage or compel UFG, MCO or 
     FDC to honor their commitments although he had the power, in 
     fact, to do so. On December 30, 1988, the Bank Board 
     reiterated its request that UFG honor its net worth 
     maintenance obligation. Again, UFG refused; Hurwitz did 
     nothing. As of December 30, 1988, USAT's reported capital was 
     $534 less than the stipulated minimum. UFG is responsible for 
     that full amount, but its ability to respond may have been 
     limited at that time to the $35 to $40 million dollar range. 
     Maxxam's obligation, as interpreted by OTS, is roughly 30 
     percent of the $534 million, i.e., Maxxam's percentage of 
     UFG's stock times the capital deficiency, or roughly $160 
     million. Maxxam's current reported capital is in the $140 
     million range.
       As part of his duty of loyalty to USAT, Hurwitz had an 
     obligation to cause UFG, MCO and FDC to make such 
     contributions. As a UFG, MCO and FDC director, officer, and 
     control person, Hurwitz was in a position to take such 
     action. He intentionally refused to do so, thereby breaching 
     his duty of loyalty to USAT. The consequent loss is in excess 
     of $150 million.
     VI. USAT's Park 410 Loan [For Information Purposes]
       In April 1986, USAT made an $80 million non-recourse loan 
     to an entity which was owned by Stanley Rosenberg, a 
     prominent San Antonio attorney and close friend and business 
     colleague of Charles Hurwitz. The loan was grossly imprudent. 
     It was made without any significant underwriting in a 
     declining real estate market when USAT officials and the 
     borrowers knew that the project was doing poorly and had 
     little chance of success. The loan was also made despite 
     warnings from regulators. For example, in January 1985, the 
     Texas Savings and Loan Department advised the Board and 
     senior management that USAT's lending portfolio was seriously 
     flawed and that scheduled items constituted 105% of net 
     worth. While many of the scheduled items noted in the 
     Texas examination predated the Hurwitz regime, the 
     comments represented a warning to the institution about 
     the fragile nature of its portfolio. Added to these 
     regulatory warnings were repeated comments by USAT's 
     outside auditor, Peat Marwick, prior to the approval of 
     the loan, that USAT's real estate lending was creating 
     substantial problems for the institution, that appraisals 
     in numerous loan files were deficient, and that 
     foreclosures and delinquencies were rising rapidly. USAT's 
     Board and senior officers chose to ignore these warnings, 
     in part, because the making of the loan generated 
     immediate fees, i.e. reported income of $2.5 million, for 
     USAT. The loan was kept from default by interest reserves 
     of $17 million. Hurwitz, the Board, the SLC, and Stanley 
     Rosenberg all share in the culpability for this 
     transaction which caused $57 million in losses to the 
     institution.
     1. Potential Defendants
       USAT's Board members who served on the SLC were grossly 
     negligent in their failure to supervise USAT properly with 
     respect to its real estate lending practices. In abdication 
     of its responsibility in this known problem area, the Board 
     set a $70 million lending limit for USAT's SLC in the face of 
     repeated warnings from regulators and Peat Marwick that its 
     lending practices and procedures were flawed and, in 
     particular that its ADC lending had severe problems. Given 
     the institution's lending experience, such delegation 
     amounted to a total abdication by the Board of its 
     responsibility to review and supervise the institution's 
     lending activities. Indeed, it appears that the Board allowed 
     the entire real estate lending and investment activity of 
     USAT to operate with nominal internal controls and no 
     oversight. Thus, the Real Estate Investment Committee 
     committed USAT to a substantial initial investment in Park 
     410 ($35 million), apparently without Board knowledge or 
     approval and in violation of its authority. The SLC increased 
     the commitment to $70 million--$80 million if the Board 
     ratified the decision. Then the Board approved funding $80 
     million--all without apparent concern that the project was 
     not a bankable credit. The Board was grossly negligent in 
     both its failures of supervision and in actually approving 
     the park 410 loan on terms extremely favorable to Rosenberg 
     based on a cursory presentation by the SLC. Only Board member 
     Winters voted to disapprove the loan.
       Officers and directors who served on the SLC will also be 
     charged with gross negligence because they knew about both 
     regulatory criticism and Peat Marwick's warning and that 
     USAT's lending activities (particularly ADC loans) had caused 
     severe losses to the institution. Despite this, the SLC gave 
     the Park 410 transaction only a cursory review and relied 
     instead on the borrower's economic analysis and on a 
     defective appraisal that was delivered orally before funding, 
     but not submitted in writing until after the loan closed. The 
     SLC allowed Hurwitz's influence to compromise its 
     deliberations and the proper exercise of its duties.
       Absent statute of limitations problems, FDIC would also 
     propose to sue Stanley Rosenberg for the damages incurred by 
     USAT in the Park 410 loan transaction. Rosenberg was both 
     counsel to USAT and a participant in the transaction. Knowing 
     the significant risks inherent in the loan, he nevertheless 
     facilitated and encouraged USAT to complete the 
     transaction. FDIC would allege that Rosenberg used his 
     conflict position with USAT for his personal benefit and 
     financial gain and that he aided and abetted the officials 
     of USAT in the breach of their fiduciary duties.
     2. Narrative Description of the Claim
       Park 410 was a 427 acre tract of vacant and unimproved real 
     estate located in western San Antonio near the proposed site 
     for Sea World. This general area had attracted considerable 
     developer interest and many competing office/retail/
     residential developments were being proposed. Its large size 
     and location made Park 410 a ``high profile'' project of the 
     type in which Hurwitz wanted USAT to be involved.
       On October 10, 1984, USAT received a signed, non-binding 
     letter of intent from Park 410 West, Ltd. (``Limited''), a 
     partnership consisting of Alamo Savings (``Alamo'') and 
     developers Robert Arburn and C. R. McClintick, offering to 
     sell USAT the Park 410 property for $42.5 million, with 75% 
     seller-financing on a non-recourse basis. Although USAT's 
     David Graham believed he had reached an agreement with 
     Limited as to the material terms of the transaction, the deal 
     collapsed soon after USAT retained, as its legal counsel, 
     long-time Hurwitz friend (and Maxxam director) Stanley 
     Rosenberg to represent the Association in finalizing the 
     transaction with Limited. On November 20, the same day 
     Limited returned, unexecuted, USAT's letter of intent to 
     purchase the property for $38 million, 80% seller-financed, 
     Rosenberg's law partner Kenneth Gindy began negotiations with 
     Limited's agent to sell the property to a different client of 
     Rosenberg's firm--Gulf Management Resources, Inc. (``GMR''). 
     Indeed, Limited ultimately agreed to sell the property to GMR 
     on terms more favorable to the purchaser and less favorable 
     to Limited than those previously offered by Limited to USAT. 
     Soon thereafter, Rosenberg became GMR's 50% partner in Park 
     410 West JV (``Joint Venture''), the entity formed to 
     purchase the property.
       In the Spring of 1985, and prior to the closing with 
     Limited, USAT accepted Rosenberg's invitation to become his 
     partner and agreed to pay all of Rosenberg's financial 
     obligations to Joint Venture in exchange for half of 
     Rosenberg's 50% interest in Joint Venture. In other words, 
     USAT agreed to fund at least 50% of the projected $65 million 
     acquisition, development and holding costs in exchange for a 
     one-fourth interest in the project. The Real Estate 
     Investment Committee (``REIC'') with Hurwitz in attendance 
     made the investment decision based on little, if any, 
     independent due diligence. Instead, the REIC relied on wildly 
     optimistic profit projections prepared by GMR (Rosenberg's 
     client and partner) and a totally distorted appraisal that 
     gave a cumulative, undiscounted market value of $72.5 
     million only if (and when) the property was subdivided and 
     ready for development. The REIC described the appraisal as 
     being ``on an as is basis'', but the appraisal expressly 
     warned that it ``does not represent the present as is 
     market value of the land,'' such a valuation being 
     ``beyond the scope'' of the appraisal. Hurwitz's influence 
     was evident from the beginning of USAT's involvement with 
     the Park 410 property. Two members of Hurwitz's core group 
     served on the REIC--Gross and Crow.
       Outside director James R. Whatley confirmed in his 
     interview that the Park 410 investment decision committing 
     USAT to $35 million was never presented to the Board of 
     Directors. The REIC's authority to commit the institution to 
     an investment, without prior Board approval, was limited to 
     $2.5 million. The Board took no steps to exercise scrutiny 
     over real estate investment decisions or, indeed, to even 
     monitor what the REIC was doing. The fact that a commitment 
     of such magnitude could be made without Board approval or 
     awareness demonstrates the Board's lack of care and its 
     conscious indifference to the need to establish effective 
     internal controls. USAT's indefensible investment in Park 410 
     set the stage (and perhaps the excuse) for it to more than 
     double its financial exposure in the Park 410 project. In the 
     Spring of 1986, and a few months after closing the purchase 
     from Limited, USAT committed to become the lender for the 
     entire project, with an exposure of up to $80 million 
     dollars.
       Graham (the SLC chairman) now admits that the Park 410 
     project ``got off to a slow start,'' that the project was 
     ``too big, too difficult,'' that there was trouble in the San 
     Antonio real estate market, and that Joint Venture could not 
     get outside funding to develop the project. In the Fall of 
     1985, Joint

[[Page E2447]]

     Venture applied to USAT for a $77.8 million loan to pay off 
     the acquisition debt still owed Alamo and McClintick, to 
     provide funds for development and to pay the holding costs of 
     the project (taxes, interest, etc.). Again, Hurwitz was 
     involved from the start. Crow recalls Hurwitz presenting the 
     loan proposal to Graham and Childress. Graham reported 
     directly to Hurwitz, as well as to members of the SLC 
     concerning negotiations in late 1985 and early 1986, and 
     Hurwitz and Rosenberg participated directly in some of the 
     negotiations. Hurwitz also participated in the 12/9/85, 1/6/
     86 and 3/17/86 SLC meetings where the loan was discussed and 
     ultimately approved. SLC member Jeff Gray recalls it being 
     widely known and understood among senior officials that 
     Hurwitz wanted USAT to make the Park 410 loan.
       Despite adverse comments from its Texas regulator regarding 
     its real estate lending problems and in the face of Peat 
     Marwick's repeated warnings in August 1984, February 1985 and 
     October 1985 that ADC loans were a problem for USAT and that 
     real estate markets were declining, the SLC approved the loan 
     on March 17, 1986, and thereby agreed to lend the Joint 
     Venture $80 million, but made its obligation to advance funds 
     beyond $70 million contingent upon first receiving Board 
     approval. Hurwitz and the SLC approved the loan despite 
     knowledge that Joint Venture had been unable to secure 
     financing from any other lender and in the face of 
     significant deterioration of the San Antonio real estate 
     market.
       When the SLC approved the loan it had not yet received the 
     appraisal which was intended to be, but was not, in 
     compliance with R41-b. Instead, Hurwitz and the SLC based 
     their analysis and approval on the borrower's (GMR) sales 
     projections and on a distorted preliminary appraisal by a 
     Houston appraiser having no apparent prior experience in San 
     Antonio that gave a cumulative, undiscounted market value of 
     $88 million. GMR's projections assumed sales of more than 65 
     acres per year, a rate of absorption even higher than its 
     projection of a year earlier and at higher prices. In fact, 
     it would be more than four years before the first acre was 
     sold at Park 410.
       The final narrative appraisal sent to USAT after the SLC 
     approved the loan was grossly deficient. It relied upon stale 
     comparables made a year earlier when the market was 
     stronger, failed to quantify or explain adjustments to 
     comparables, failed to consider the impact of the glut of 
     similar projects in the area and failed to contain all 
     three approaches to value. Not surprisingly, both state 
     and federal examiners strongly criticized the appraisal.
       The loan closed on April 17, 1986, with USAT making an 
     initial advance of $45.6 million. Three weeks later on May 8, 
     1986, the loan was approved by USAT's Board of Directors, 
     with Hurwitz, Kozmetsky, Gross and Munitz in attendance. The 
     Board package for this meeting contained the five page loan 
     proposal approved by the SLC. This proposal provided, at 
     best, a cursory analysis of a loan of this size and 
     complexity. The minutes of the meeting reflect no 
     presentation or discussion of the loan prior to Board 
     approval. According to the minutes, outside director Wayne C. 
     Winters voted against the loan because of concerns about the 
     loan amount and the value of the property. According to 
     Graham, while Hurwitz did not force USAT to make the loan, 
     everyone on the SLC and on USAT's Board knew that Rosenberg 
     was a close friend of Hurwitz and that Hurwitz was enamored 
     with putting USAT in play on a big real estate deal in San 
     Antonio.
       Hurwitz, the SLC and the Board permitted the loan to be 
     made on terms very favorable to Rosenberg and GMR, but 
     adverse to USAT. If it was going to be involved at all, as 
     the lender of ``last resort'' for the borrowers, USAT could 
     have (and should have) dictated terms which provided maximum 
     protection for the institution. Instead, the loan was non-
     recourse to the borrower, and guarantees were for only 25% of 
     the loan and took effect only after foreclosure and the 
     declaration of a deficiency. The guarantors were also allowed 
     to credit their personal guarantees for any amounts drawn 
     against their $10 million letters of credit. In addition, 
     various improper disbursements were made (without objection 
     from USAT) out of the loan proceeds, including a $400,000 
     ``loan fee'' to Rosenberg and an undisclosed management fee 
     to Rosenberg of $62,500 at closing and $75,000 per year 
     thereafter. The transaction allowed the borrowers to avoid or 
     minimize virtually all immediate ``hard dollar'' commitment 
     to the project.
       The deficiencies described above and the actions and 
     inactions of USAT's Board and SLC provide ample support to 
     assert claims for gross negligence and breach of fiduciary 
     duty. Clearly the Board's conduct constituted conscious 
     indifference to the financial safety and soundness of the 
     Association, particularly in view of the fact that (i) this 
     was the largest loan ever made by USAT and, in the face of 
     the warnings from Peat Marwick and state regulators, required 
     careful scrutiny (ii) SLC members knew that other lenders had 
     refused to finance the project (iii) the financial 
     projections were wildly optimistic and the appraisals flawed 
     (iv) market conditions were getting worse not better and, (v) 
     USAT could have walked away from its initial ``investment'' 
     in the project for $4.5 million. Instead, the SLC and the 
     Board (in large part because of Hurwitz's influence) chose to 
     commit up to $80 million to a project which they knew or 
     should have known had a high probability of failure.
       As noted above, if there were no statute of limitations 
     problem with this claim, FDIC would also propose to sue 
     Stanley Rosenberg for his role in the transaction. Without 
     question, Rosenberg was at the core of Park 410 and 
     influenced many of USAT's actions or inactions through his 
     relationship with Hurwitz. Rosenberg was originally USAT's 
     counsel in the transaction. However, he failed to close a 
     transaction in which USAT, his client, would have had 100% of 
     the benefits in exchange for 100% of the risk. Instead, he 
     negotiated a series of deals which resulted in Rosenberg 
     himself having 25% of the profit potential (plus $462,500 of 
     USAT's cash), another client had a 50% interest in the 
     profits, and Rosenberg's client USAT had 50% of the downside 
     risk but only 25% of the upside potential.
       Given his knowledge, Rosenberg should have counseled USAT 
     not to pursue the Park 410 investment. Rosenberg breached his 
     professional duty as an attorney by not warning USAT that it 
     was on the verge of becoming a victim of a potentially 
     illegal Texas land flip (i.e., paying Alamo and McClintick 
     three times what they paid for the property less than a year 
     before), that the market was deteriorating and that no other 
     financial institution would finance the deal. He failed to 
     protect USAT's interests as he was obligated to do. He 
     compounded that breach by enticing and encouraging USAT 
     into a deal that he knew potentially would benefit him by 
     placing USAT at enormous risk. For this he is liable for 
     malpractice and for this same conduct--irrespective of 
     Rosenberg's status as USAT's attorney--he is liable for 
     aiding and abetting USAT officers in the breach of the 
     officers' duties. Rosenberg and his law firm received 
     $462,000 from the loan proceeds and undisclosed management 
     fees.
     3. Serious Statute of Limitations on the Parks 410 Loan
       Because the Park 410 loan closed in April 1986, more than 
     two years before USAT's failure, there is a serious statute 
     of limitations problem on this claim that we do not believe 
     we can overcome. In light of the Fifth Circuit's opinion in 
     Dawson, the Supreme Court's refusal to consider whether a 
     federal rule should be adopted under which negligence by a 
     majority of the directors would toll the statute of 
     limitations, the failure of Congress to address the statute 
     of limitations problems through legislation, and the Fifth 
     Circuit's recent opinion in Action, we do not believe there 
     is a basis under existing law for defeating a statute of 
     limitations motion based on Park 410. Consequently, we do not 
     recommend going forward with claims arising out of Park 410.
     VI. Applicable Legal Theories and Defenses
       We recommend pursuing these claims with the following legal 
     theories: (A) breach of fiduciary duty of loyalty, (B) gross 
     negligence and breach of fiduciary duty of care, and (C) 
     knowing participation in and aiding and abetting breach of 
     fiduciary duty. Our reasons are summarized below.
     A. Breach of Fiduciary Duty of Loyalty
       Because of the role that USAT played in maintaining 
     Hurwitz's relationship with Drexel, the financial interest 
     and net worth maintenance exposure that UFG, MCO and FDC had 
     in USAT, and the business relationship with Rosenberg from 
     which the benefitted personally, Hurwitz profited the most 
     from the actionable transactions and stood to lose the most 
     had the plug been pulled on USAT sooner. Similarly, the other 
     proposed individual defendants were so closely tied to 
     Hurwitz and his business interests that they compromised 
     their ability to place USAT's interests ahead of Hurwitz's. 
     Munitz, Gross, and Crow were dual UFG/USAT directors and 
     received generous compensation from USAT. All but Crow had 
     other business connections with Hurwitz that fostered divided 
     loyalties. Munitz was also an officer and/or director of MCO 
     and FDC at various times. Gross had an equity interest in 
     FDC. As a consequence of these relationships, UFG and Hurwitz 
     profited at USAT's expense.
     B. Gross Negligence and Breach of Fiduciary Duty of Care
       Many of our claims against Hurwitz and the other proposed 
     individual defendants will be based on allegations of gross 
     negligence and breach of fiduciary duty of care. Recent 
     federal court decisions in Texas interpreting Texas law 
     preclude recovery for simple negligence. Therefore, we will 
     have to contend that the defendants were guilty of gross 
     negligence--a more rigorous standard. Although we believe 
     that the decisions to make the Park 410 loan and the UMBS 
     investment, and those with respect to Joe's Portfolio, were 
     grossly negligent, a recent decision by the Texas Supreme 
     Court announced a new standard of gross negligence that--if 
     applied--will make it much more difficult to prove our 
     claims.
     C. Knowing Participation in and Aiding and Abetting Breach of 
         Fiduciary Duty
       Under Texas law, secondary liability theories, such as 
     knowing participation in or aiding and abetting breach of 
     fiduciary duty, can be used to reach the activities of 
     culpable persons, like Hurwitz or Rosenberg, who were neither 
     officers nor directors of USAT. Hurwitz can be held liable 
     for the breaches of duty of Munitz, Gross, and the others 
     where he had knowledge that the others were breaching their 
     duty to USAT and provided substantial assistance, direction 
     or encouragement. Based on the facts, Hurwitz

[[Page E2448]]

     should be sued for his knowing participation in breaches of 
     fiduciary duty by the officer and director defendants.
     D. Anticipated Defenses
       Business Judgment Rule The defendants will contend that the 
     decisions we challenge were business judgments for which they 
     cannot be held liable under Texas law. Recent decisions in 
     federal courts in Texas suggest that the business judgment 
     rule will be applied liberally to protect directors and 
     officers from claims for bad management decisions, even when 
     large losses result. The presence of ulterior motives, such 
     as Hurwitz's relationship with Drexel, his desire to avoid 
     net worth maintenance claims, and his relationship to Mr. 
     Rosenberg would be relevant in our effort to avoid 
     application of the business judgment rule.
       The defendants will contend that the decision to invest in 
     UMBS was a reasonable business decision under the 
     circumstances. They will argue that the absence of 
     alternative investments, given the downturn in the Texas real 
     estate market, and USAT's need for earnings, made a leveraged 
     investment in MBS risk controlled arbitrage completely 
     appropriate. They will point out that UMBS had a positive 
     spread and reported profits from its formation until the date 
     a receiver was appointed for USAT, with reported 1986 
     earnings of $906,398, 1987 earnings of $37,479,283 and 1988 
     earnings of $20,251,468. They presumably will contest 
     Laurenson's account that the Investment Committee gave its 
     approval for a ``dice roll.'' They will argue that it is 
     inappropriate to evaluate their investment strategy based on 
     the results of a forced liquidation of the portfolio after 
     the receivership appointment, particularly because, if the 
     MBSs had been held for a longer time, they might have been 
     sold at a profit after interest rates declined.
       Nonetheless, there is a substantial risk that the decisions 
     we challenge will ultimately be held to constitute business 
     judgments for which we cannot recover losses.
       Pre-Insolvency Duty. The defendants will argue that until 
     USAT became insolvent, the fiduciary duties of directors and 
     officers ran only to the institution's equity holders, not to 
     its creditors and depositors. Because USAT was not reporting 
     insolvency at the time of the actions we challenge, the 
     defendants will argue that they had a duty to undertake any 
     and all lawful means to keep the institution open for as long 
     as possible, even if that course of conduct aggravated the 
     losses to the FDIC, depositors and creditors.
       We believe that this argument is without merit and that the 
     duties of directors and officers run to the corporation, not 
     to its shareholders. We will contend that directors of 
     financial institutions have very broad fiduciary duties to 
     persons other than the shareholders, including depositors. We 
     will also contend that no director or officer may breach 
     the fiduciary duty of loyalty, regardless of the solvency 
     of the institution. We will argue that the defendants 
     engaged in speculative transactions to extend the life of 
     USAT when the viability of USAT was tenuous, at best, and 
     there was no reasonable expectation that it could continue 
     in business.
       Standing/UMBS--The defendants will argue that the FDIC as 
     USAT's Receiver does not have standing to challenge the 
     investment activities of UMBS, a subsidiary. They will argue 
     that the Receiver does not own those claims. The UMBS claims, 
     however, are based upon claims arising out of USAT activity, 
     i.e., USAT's loss of $97 million as a result of the decision 
     to invest $180 million of USAT money in UMBS without proper 
     controls and protection. The Receiver clearly has standing to 
     challenge such decisions. Furthermore, UMBS's day to day 
     investment decisions were controlled and directed by the USAT 
     defendants, thus making the line between the two entities for 
     purposes of investment decision-making non-existent.
       Statute of Limitations--The defendants will argue that the 
     statute of limitations has expired on our proposed claims. 
     Texas law requires claims of negligence, grow negligence and 
     breach of fiduciary duty to be commenced within two years of 
     accrual, unless limitations are tolled by equitable 
     principles. In the Dawson case, the Fifth Circuit decided 
     that the statute would not be tolled on an ``adverse 
     domination'' theory unless a majority of the directors were 
     guilty of more than negligence in approving the challenged 
     corporate action, or in failing to discover wrongful conduct 
     by others. The federal trial courts in Texas had split on the 
     actual level of culpability required, with some courts 
     holding that gross negligence by a majority of directors is 
     sufficient to toll the statute and others holding that more 
     culpable conduct, such as fraud, is required. The Supreme 
     Court refused to consider in Dawson whether a federal rule 
     should be adopted under which negligence by a majority of the 
     directors will toll the statute. This question has been 
     answered in the Fifth Circuit by the recent decision in RTC 
     v. Acton, 49 Fd.3 1086 (5th Cir. 1995), holding that under 
     Texas law, only self-dealing or fraudulent conduct, and not 
     gross negligence, is sufficient to toll the statute of 
     limitations under the doctrine of adverse domination.
       The first $100 million of USAT's equity interest in UMBS 
     was recorded on the books of UMBS in November and December, 
     1986--more than two years before a receiver for USAT was 
     appointed. After December 30, 1986 and before May 31, 1987, 
     USAT raised its equity contribution in UMBS by a total of $80 
     million. In March 1987, USAT's equity in UMBS increased from 
     $100 million to $150 million. In May 1987, it increased from 
     $150 million to $180 million. We evaluated whether a claim 
     could be made for USAT investments in UMBS after December 30, 
     1986--within the Texas two year statute of limitations. We 
     will have to establish that losses resulted from the 
     investments USAT made in UMBS in 1987. Because the net ``out 
     of pocket'' loss on the entire $180,000,000 equity 
     contribution was only $64,997,000, we would have to argue 
     that the last money invested was the first money to be 
     lost. The logic of that position may not be accepted by a 
     court. If it is not, it appears that our claim will fail 
     because, arguably, USAT recovered its entire 1987 
     investment when UMBS was liquidated and the ``loss'' 
     suffered was a loss of $64,997,000 of the contribution it 
     made before December 30, 1986, prior to the two year 
     statute of limitations.
       Regulatory Approval--The defendants also are likely to 
     contend that the regulators knew about or approved USAT's 
     investment activities in MBSs. Regulators did not prohibit 
     MBS investments, but neither did they direct or authorize 
     USAT to do what it did. Moreover, the evidence will show that 
     USAT did not affirmatively disclose (1) the losses inherent 
     in its interest rate swaps from USAT Mortgage Finance in late 
     1985 or from USAT's ``Joe's Portfolio'' in early 1986, (2) 
     the fact that its ``roll down'' program for ``Joe's 
     Portfolio'' resulted in a negative spread between the income 
     on the MBSs and the cost of the swaps, and that the swap 
     problem could have been handled less expensively and with 
     less risk for USAT, (3) the fact that $100 million was 
     invested in UMBS despite the disastrous experience with 
     ``Joe's Portfolio,'' which could only be understood if one 
     knew about the swap dimension of the problem and (4) the fact 
     that an additional $80 million was invested in UMBS in 1987 
     after the initial investment had already begun to turn sour.
       Hurwitz's Involvement--Hurwitz will assert that he cannot 
     be held liable because he was never an officer or director of 
     USAT. He will also argue that even as a director of UFG, he 
     did not exercise authority or control over USAT and did not 
     knowingly participate in breaches of fiduciary duty by USAT's 
     officers and directors. Because Hurwitz, in fact, was 
     actively involved in virtually every aspect of USAT's 
     business, and especially in the management of its securities 
     portfolio, we have a reasonable chance to overcome this 
     defense.
     VII. Cost Effectiveness and Assessment of Proposed Litigation
       If approved, a lawsuit against the proposed defendants 
     would be filed in the U.S. District Court for the Southern 
     District of Texas, Houston, seeking approximately $300 
     million in damages. We propose using the law firm of Hopkins 
     & Sutter and the minority owned firm of Adorno & Zeder. Both 
     firms have Legal Services Agreements with the FDIC and do not 
     exceed any fee cap.
       Potential recovery sources include the proposed defendants, 
     who have an aggregate net worth of $150 million. In addition, 
     the by-laws of MCO (now Maxxam), provide for the 
     indemnification of any person who serves as an officer or 
     director of a subsidiary (which would include UFG and 
     possibly USAT) or, at the request of MCO, serves as an 
     officer or director of any other corporation. Thus, Munitz 
     (who was an officer and director of MCO and/or FDC), may 
     be entitled to indemnification from Maxxam for his 
     wrongful acts as a USAT director and officer. Hurwitz may 
     also be entitled to indemnification for his wrongful acts 
     as a director and officer of UFG and because of his 
     activities at USAT as a member of the UFG/USAT Strategic 
     Planning Committee. Maxxam is a publicly traded company 
     with market capitalization, as of March 15, 1994, of $223 
     million and total assets of $3.2 billion.
       The claims described in this memorandum arising out of the 
     misconduct of officers and directors are large and complex. 
     They are also subject to a number of recent adverse decisions 
     by the Fifth Circuit Court of Appeals, the Southern District 
     of Texas and the Texas Supreme Court which restrict 
     substantive liability and FDIC's ability to reach significant 
     claims accruing prior to December 1986. As a consequence, 
     FDIC's Complaint will be vigorously challenged and appears 
     vulnerable to motions to dismiss and motions for summary 
     judgment. There is at least a 70% chance that these claims 
     will be disposed of adversely to the FDIC on such motions 
     relating to the statute of limitations. If, however, the 
     claims survive summary judgment and proceed to jury trial, 
     the odds of a favorable outcome (by settlement or verdict) 
     improve, but do not exceed 50%. These variables make it 
     difficult, if not impossible, to quantify the chances of 
     success overall.
       It is estimated that pursuing this matter to trial will 
     cost approximately $4 million in fees and expenses, including 
     expert witness fees, and an additional $2 million in fees and 
     expenses will be incurred through trial. Our downside risk is 
     limited somewhat by the likelihood of an early statute of 
     limitations motion. It is thus likely that we will incur 
     substantially less than the full cost of a trial if we are 
     not going to prevail on the statute of limitations issue. To 
     date we have incurred approximately $4 million in fees and 
     expenses for the investigation by outside counsel, 
     approximately $400,000 by the Office of Thrift Supervision 
     and approximately $600,000 for in-house investigation and in-
     house attorney costs. Claims of this nature

[[Page E2449]]

     and magnitude are very difficult to value. That noted, if the 
     case survived statute of limitations defenses, the estimated 
     settlement value would be $20-$40 million.
                                                     July 28, 1995
     Memorandum to: Catherine L. Hammond, Office of the Executive 
         Secretary.
     From: Robert J. DeHenzel, Jr., Counsel, Professional 
         Liability Section.
     Subject: Authority to Institute PLS Suit, Institution: United 
         Savings Association of Texas, Fin #1815, Proposed 
         Defendants: Former directors and officers, defacto 
         director and controlling person Charles Hurwitz.

       The enclosed memorandum requesting authority to institute a 
     PLS suit is on the Board agenda for Tuesday, August 1, 1995. 
     Because Mr. Bovenzi is out of town and has not had the 
     opportunity to sign, we are not enclosing the original with 
     the distribution today. We anticipate securing his signature 
     on Monday morning, and will then promptly have the original 
     forwarded to your office.
       The Deputies to the Directors and the General Counsel are 
     aware that Mr. Bovenzi has not had the opportunity to sign 
     and have no objection to this procedure.
       Please call me if you have any questions whatsoever.
     Jack D. Smith
     Richard Romero

                                  ____
                                  

                               RESOLUTION

       Whereas, pursuant to authority contained in the Federal 
     Deposit Insurance Act and/or pursuant to applicable state or 
     federal law, the Federal Deposit Insurance Corporation 
     (``FDIC''), acting as conservator or receiver or in its 
     corporate capacity has the authority to bring civil actions 
     for monetary damages against directors or officers, outside 
     professionals, or fidelity bond companies (or their 
     successors, heirs or assigns) of insured depository 
     institutions who fail to fulfill their responsibilities 
     (``professional liability claims''); and
       Whereas, the FDIC has investigated and evaluated 
     professional liability claims that it may have arising from 
     the failure or conservatorship of United Savings Association 
     of Texas, Houston; and
       Whereas, based on such investigation and evaluation, the 
     Legal Division and the Division of Depositor and Asset 
     Services believe there is a sufficient basis to prosecute 
     such claims; and
       Whereas, the Legal Division and the Division of Depositor 
     and Asset Services have recommended that the Board of 
     Directors (``Board'') of the FDIC authorize the filing of a 
     lawsuit seeking damages based on such claims.
       Now, Therefore, Be It Resolved, that the Board hereby 
     approves the filing of a lawsuit against former directors and 
     officers Barry Munitz, Jenard Gross and Michael Crow and 
     controlling person Charles Hurwitz, arising out of the 
     failure of United Savings Association of Texas and authorizes 
     the General Counsel (or designee), on behalf of the FDIC, to 
     take all actions necessary or appropriate to prosecute such 
     lawsuit, including any additional litigation necessary to 
     protect or assure the viability or collectibility of the 
     claims to be prosecuted in such lawsuit.

                               Document M


                                 Draft

     To: William F. Kroener, III, General Counsel.
     Subj: Meeting with Vice President Gore on Friday, Oct. 20, 
         1995, at 11:00 a.m.


                           discussion points

     I. Background
       1. United Savings Association of Texas, Houston, Texas 
     (``USAT''), was acquired in 1983 by Charles E. Hurwitz. 
     Hurwitz leveraged the institution through speculative and 
     uncontrolled investment and trading in large mortgage-backed 
     securities portfolios, without reasonable hedges, to $4.6 
     million in assets. Investments lost value and USAT was 
     declared insolvent and placed into FSLIC receivership on 
     December 30, 1988. Loss to the FSLIC Resolution Fund is $1.6 
     billion.
       2. While Hurwitz was a controlling shareholder and de facto 
     director of USAT he acquired, through a hostile takeover and 
     with the strategic and financial assistance of Drexel Burnham 
     Lambert, Inc., Pacific Lumber Company, a logging business 
     based in northern California. As a result, Hurwitz came to 
     control the old growth, virgin redwoods that are the 
     principal focus of the Headwaters Forest.
     II. FDIC Litigation
       1. On August 2, 1995, FDIC as Manager of the FSLIC 
     Resolution Fund filed a lawsuit against Mr. Hurwitz seeking 
     damages in excess of $250 million.
       a. Complaint contains three claims:
       * Count 1 alleges breach of fiduciary duty by Hurwitz as de 
     factor director and controlling shareholder of USAT by 
     failing to comply with a New Worth Maintenance Agreement to 
     maintain the capital of USAT;
       * Counts 2 and 3 allege gross negligence and aiding and 
     abetting gross negligence in establishing, controlling and 
     monitoring two large mortgage-backed securities portfolios.
       2. FDIC has authorized suit against three other former 
     directors of USAT that we have not yet sued; a tolling 
     agreement with these potential defendants expires on December 
     31, 1995. The court may order FDIC to decide to add them as 
     defendants prior to that date.
       3. Status of FDIC Litigation: Pursuant to the Federal Rules 
     of Civil Procedure, the parties--through counsel--have met 
     and exchanged disclosure statements that list all relevant 
     persons and documents that support our respective positions. 
     Moreover, the parties have agreed to a scheduling order that 
     reflects a quick pre-trial period. All discovery is to be 
     concluded by July 1, 1996. The court has set a scheduling 
     conference to discuss all unresolved scheduling issues for 
     October 24, 1995; and a follow-up conference on November 28, 
     1995.
     III. Settlement Discussions
       1. FDIC has had several meetings and discussions with 
     Hurwitz' counsel prior to the filing of the lawsuit. Hurwitz 
     has never, however, indicated directly to FDIC a desire to 
     negotiate a settlement of the FDIC's claims.
       2. As a result of substantial attention to Pacific Lumber's 
     harvesting of the redwoods by the environmental community, 
     media inquiries, Congressional correspondence, and the state 
     of California, Pacific Lumber has issued various press 
     releases stating it would consider various means of 
     preserving the redwoods.
     IV. OTS Investigation
       1. Since July 1994, the Office of Thrift Supervision has 
     been investigating the failure of USAT for purposes of 
     initiating an administrative enforcement action against 
     Hurwitz, five other former directors and officers, and three 
     Hurwitz-controlled holding companies. The OTS may allege a 
     violation of the Net Worth Maintenance Agreement and unsafe 
     and unsound conduct relating to the two MBS portfolios and 
     USAT's real estate lending practices. If OTS files its 
     administrative lawsuit, it may allege damages that total more 
     than $250 million.
       2. OTS has met with Hurwitz' counsel; no interest in 
     settlement has been expressed to OTS.
       3. OTS is likely to formally file the charges within 45 
     days.
       4. Appears to FDIC inappropriate to include OTS 
     representatives in the meeting to discuss possible settlement 
     of its claims against Hurwitz since OTS has not yet approved 
     any suit against Hurwitz or his holding companies and OTS' 
     participation at such meeting may be perceived by others as 
     an effort by the Executive Branch to influence OTS's 
     independent evaluation of its investigation.
     V. FSLIC Resolution Fund (``FRF'') Issues
       1. The Financial Institutions Reform, Recovery and 
     Enforcement Act of 1989 (``FIRREA'') (enacted Aug. 9, 1989), 
     accord special treatment to certain savings & loan 
     associations that failed prior to its enactment. The FRF 
     obtains its funds from the Treasury and all recoveries from 
     the assets or liabilities of all FRF institutions are 
     required to be conveyed to Treasury upon the conclusion of 
     all FRF activities. The statute does not establish a date for 
     the termination of the FRF. FRF fund always in the red due to 
     huge cost of these thrift failures.
       2. To date, FRF owes the Treasury approximately $46 
     billion.
       3. FDIC has decided that if Hurwitz offered the redwoods to 
     settle the FDIC claims, we would be willing to accept that 
     proposal. Because any assets recovered from FRF institutions 
     are required to eventually be turned over to Treasury, the 
     trees (i.e. the land conveyance) could conceivably be 
     transferred to Treasury.
       4. May need legislation to assist in transfer of land and 
     other details of such a conveyance. The mechanics of such a 
     transfer is not a focus of FDIC's current efforts, which are 
     to persuade Hurwitz of liability and to seriously consider 
     settlement.
     VI. Impediments to FDIC Direct Action Against Trees
       1. FDIC has no direct claim against Pacific Lumber through 
     which it could successfully obtain or seize the trees or to 
     preserve the Headwaters Forest. Neither Maxxam, Inc. (which 
     owns Pacific Lumber and is controlled by Hurwitz) nor Pacific 
     Lumber are defendants in FDIC's suit. There is no direct 
     relationship between Hurwitz' actions involving the 
     insolvency of USAT and the Headwaters Forest owned by Pacific 
     Lumber. Pacific Lumber was acquired by Maxxam but does not 
     appear to have owned any interest in USAT or United Financial 
     Group, USAT's first-tier holding company. Moreover, neither 
     USAT nor UFG ever owned an interest in Pacific Lumber.
       2. FDIC's claims alone are not likely to be sufficient to 
     cause Hurwitz to offer the Headwaters Forest, because of 
     their size relative to a recent Forest Service appraisal of 
     the value of the Headwaters Forest ($600 million); because of 
     very substantial litigation risks including statute of 
     limitations, Texas negligence--gross negligence business 
     judgment law, and Hurwitz's role as a de facto director; and 
     the indirect connection noted above, including the risk of 
     Hurwitz facing suit from Pacific Lumber securities holders if 
     its assets were disposed of without Pacific Lumber being 
     compensated by either outsiders or Hurwitz or entities he 
     controls.

                                  ____
                                  

                               Document N

                                                 Hopkins & Sutter,


                                  Chicago, Washington, Dallas,

                                                   March 24, 1995.

                               Memorandum

     To: File.
     From: F. Thomas Hecht.
     Re: Environmental Developments.
     CC: Jeffrey R. Williams and Robert J. DeHenzel.

       Over the past year the FDIC has been subject to an intense 
     lobbying effort by certain

[[Page E2450]]

     environmental activists led by the Rose foundation of 
     Oakland, California. Their principal concern has been to 
     conserve an area of unprotected old-growth redwoods in 
     northern California known as the Headwaters Forest, currently 
     owned by Pacific Lumber, a wholly owned subsidiary of Maxxam, 
     Inc. Because of the potential FDIC and OTS claims against 
     both Maxxam and Hurwitz, the Rose Foundation and others have 
     urged that the agencies take steps to protect the redwoods. 
     They urge either a negotiated ``debt for nature swap'' in 
     which the agencies' liability claims are traded away for the 
     forest, or litigation to seize the assets of Pacific Lumber. 
     More recently, a Qui Tam was filed in the United States 
     District Court for the Northern District of California by 
     Robert Martel, a free lance journalist and 
     environmental activist, seeking to draw the government 
     into litigation against Maxxam, Hurwitz and Pacific 
     Lumber.
       The purpose of this summary is to memorialize our contacts 
     with these groups and to discuss the options they have urged 
     upon the FDIC and OTS.


              A. The Headwaters Forest and Pacific Lumber

       The Headwaters Forest consists of about 44,000 acres of 
     forest ecosystems, including approximately 3,000 acres of old 
     growth redwoods. These are the last vestiges of the virgin 
     redwood forest that once extended for 500 miles across 
     Northern California and into southern Oregon. The Headwaters 
     Forest is also a nesting area for certain endangered species. 
     It is, by general agreement, an extraordinary natural 
     resource. Pacific Lumber owns much of the Headwaters Forest 
     and surrounding areas, including the old growth redwoods. For 
     many years, Pacific Lumber utilized timber harvest techniques 
     which emphasized preservation of much of the old growth 
     redwood acreage. It appears that the company is now committed 
     to harvest the timber more aggressively. This includes clear-
     cutting at least part of the unprotected redwoods. There are 
     currently pending several lawsuits brought by environmental 
     groups and residents of the area seeking to block some of the 
     harvesting. The results have been mixed. However, most 
     recently the United States District Court for the Northern 
     District of California issued an injunction restraining 
     Pacific Lumber from logging old growth redwoods in the Owl 
     Creek area--about five miles from the Headwaters Forest. 
     After a two week trial the Court held that Pacific Lumber's 
     logging practices represented a threat to the nesting areas 
     of the marbled murrelet. Among other matters, the case raises 
     the issue of the ability of the Endangered Species Act to 
     reach private holdings. Apparently, the decision will be 
     appealed.


            B. FDIC contacts with the Rose Foundation et al.

       As noted above, the Rose Foundation and other 
     environmentalists have repeatedly urged that the FDIC engage 
     in a ``debt for nature'' swap as part of a negotiated 
     settlement or undertake a course of litigation which would 
     result in the seizure of Pacific Lumber's assets, namely the 
     redwoods. Representatives of the FDIC and Hopkins & Sutter 
     have met with representatives of the environmental groups to 
     hear their presentations and to evaluate their claims. Thus:
       On June 17, 1994, Thomas Hecht met with Jill Ratner of the 
     Rose Foundation in San Francisco for an initial meeting at 
     which Ms. Ratner outlined her groups' concerns.
       On October 4, 1994, Hecht, Jeffrey Williams, Robert 
     DeHenzel and the Rose Foundation and its lawyers participated 
     in a teleconference at which the claims prepared by the Rose 
     Foundation were presented in more detail.
       On January 20, 1995, DeHenzel and Hecht met with Julia 
     Levin of the Natural Heritage Foundation (``NHF''), a group 
     closely associated with the Rose Foundation. NHF is 
     conducting much of the lobbying effort on behalf of the Rose 
     Foundation and other environmental activists on this issue.
       In addition to these more formal encounters, Williams, 
     DeHenzel and Hecht have each been contacted repeatedly by the 
     Rose Foundation and its attorneys to explore the theories in 
     more depth and to urge the FDIC to take action. In each of 
     these meetings and in subsequent telephone conversations and 
     correspondence, the Rose Foundation and its allies have urged 
     three general approaches to the problem including: (a) the 
     imposition of a constructive trust over Pacific Lumber's 
     redwoods, (b) the seizure of redwoods using an unjust 
     enrichment theory, and (c) obtaining rights to the forest or, 
     at a minimum, an environmental easement, as part of a 
     negotiated settlement. The have also urged Congressional 
     action, filed a Qui Tam proceeding in the Northern District 
     of California and threatened the FDIC with proceedings under 
     the Endangered Species Act.
     1. The Constructive Trust and Unjust Enrichment Theories
       The possibility of acquiring Pacific Lumber's redwoods by 
     the imposition of a constructive trust has been the 
     centerpiece of the legal work presented to the FDIC by the 
     Rose Foundation. The constructive trust theory proceeds on 
     the following assumptions: (a) that Hurwitz and Maxxam 
     controlled USAT; (b) that Hurwitz, with USAT's funds, entered 
     into an improper quid pro quo arrangement with Drexel 
     pursuant to which federally insured funds were used to invest 
     in Drexel-underwritten junk bonds, (c) in exchange for USAT's 
     investments, Drexel provided Hurwitz with financial 
     assistance in the hostile takeover of Pacific Lumber; and 
     (d) USAT's investment in the junk bonds caused significant 
     damages to USAT including it insolvency. The argument is 
     that the acquisition of Pacific Lumber was the fruit of 
     certain fraudulent or improper conduct, namely, the quid 
     pro quo arrangement, and that the FDIC, as successor to 
     the failed USAT has standing to impose a constructive 
     trust on Pacific Lumber as a result of the losses 
     sustained.
       This is a difficult case. First, although there was 
     obviously a reciprocal course of conduct between Hurwitz and 
     Drexel, it is not at all clear that such a course of conduct 
     (or even a firm agreement) was improper in any legal sense. 
     USAT's investment in junk bonds was authorized by federal 
     regulation and approved by USAT's investment committee. 
     Disclosure could be an issue, but Board minutes and 
     examination reports indicate that both regulators and Board 
     members knew of USAT's investment in Drexel underwritten 
     bonds and knew of Hurwitz's takeover activities as well. 
     Board members and regulators may not have known of the full 
     extent of the quid pro quo and this could be used to develop 
     claims further. This, however, is qualitatively different set 
     of facts than those alleged by the Rose Foundation. Most 
     importantly, the junk bond portfolio was not the cause of 
     USAT's insolvency. Significant other problems dominated the 
     Association including staggering losses from its mortgaged 
     backed securities and related investments, unamortized ``good 
     will'' and the deeply troubled real estate portfolio. What 
     the quid pro quo provides, however, is the context for other 
     USAT misconduct. For example, it helps explain the lengths to 
     which the officers of USAT manipulated the finances of the 
     institution in order to keep the doors of the institution 
     open so that Hurwitz could continue to avail himself of 
     Drexel contacts and resources.
       The case law on constructive trusts raises additional 
     concerns. It is not, as argued by the Rose Foundation, a 
     generalized remedy for any wrongful or deceitful conduct. The 
     remedy typically involves equitable imposition of a trust 
     where one who is entitled to certain property (or the res of 
     the ``trust''), is deprived of that property by fraud, 
     wrongdoing or false promise. Entitlement to constructive 
     trust is defined, in significant part, by statute in 
     California. Thus: ``One who gains a thing by fraud . . . or 
     other wrongful conduct . . . is an involuntary trustee of the 
     thing gained for the benefit of the person who would 
     otherwise have had it.'' Calif. Civil Code Sec. 2224 
     (emphasis added). The case law identifies three preconditions 
     for the imposition of the trust: (a) a discrete, identifiable 
     res, (b) an entitlement to the res by the plaintiff of which 
     he or she was deprived and (c) wrongful conduct by the 
     defendant. See GHK Associates v. Myer Group, Inc.., 274 
     Cal.Rptr. 168 (Cal. Ct.App. 1991). The FDIC is not an entity 
     ``who would otherwise have had'' Pacific Lumber or its 
     hardwoods; the FDIC has no entitlement to the assets of 
     Pacific Lumber of which the FDIC was deprived. This seriously 
     impairs any claim for the imposition of a constructive trust 
     over those assets. Nor is it clear what the res of such trust 
     should be. To prevail, the Rose Foundation must argue that 
     Pacific Lumber's forests or the company itself is simply a 
     mutated form of USAT's investment in Drexel underwritten 
     projects at the front end of the quid pro quo. But this 
     represents very difficult problem of proof. The FDIC would 
     have to establish a strong, if not direct one-to-one, 
     correlation between USAT investments in Drexel underwritten 
     securities, and the reinvestment of equivalent sums in 
     Maxxam's takeover of Pacific Lumber by the third parties who 
     issued those securities. Thus far in our investigations, such 
     correlations have not been established.
       The Rose Foundation and its attorneys, alternatively, argue 
     that because Hurwitz and Maxxam were ``unjustly enriched'' 
     quid pro quo, Pacific Lumber and its holdings should be 
     seized. Unjust enrichment, however, is a factual 
     circumstance--not a cause of action. It may, under 
     appropriate circumstances, justify restitution and the 
     imposition of a constructive trust, but it is not an 
     independent basis for granting relief. Lauriedale Associates 
     Ltd. v. Wilson, 7 Cal. App. 4th 1439, 9 Cal.Rptr. 2d 774 
     (First Dist. 1992). Unjust enrichment allegations are 
     typically made in support of requests for constructive trust, 
     not as an alternative to them. There is, however, case law 
     which allows disgorgement of profits arising out of a breach 
     of fiduciary duties which describes such profits as ``unjust 
     enrichment''. This appears to be the theory upon which the 
     Rose Foundation relies. See Heckmann v. Ahmanson, 168 
     Cal.App.3d 119, 214 Cal Rptr. 177 (1985). But in such 
     litigation the profits must be clearly identifiable and 
     closely tracked. As noted above, this would be difficult in 
     this case--unless one assumes that the funds used for junk 
     bond purposes translated dollar for dollar through various 
     third parties at Drexel's behest and then to Maxxam for its 
     acquisition of Pacific Lumber. No one who has looked at these 
     relationships closely is willing to take that position.
     2. The Redwoods As Subject of Negotiations
       As their theories have become subject to criticisms, 
     certain of the counsel for the Rose Foundation have shifted 
     (at least in part) from arguments compelling the seizure of 
     the redwoods to urging the development of an aggressive and 
     high profile damages case in which the redwoods become a 
     bargaining chip in negotiating a resolution. This indeed, may 
     be the best option available to the environmental groups; its 
     greatest strength is

[[Page E2451]]

     that it does not depend on difficult seizure theories. This 
     approach would require that both the FDIC and OTS undertake 
     to make the redwoods part of any settlement package. It is a 
     strategy which would attract considerable attention if 
     successful. It is, however, not without serious problems. For 
     example, Maxxam is a publicly held corporation and Pacific 
     Lumber is the only one of its holdings which is profitable. 
     Minority shareholders may be reluctant to allow a substantial 
     portion of the most profitable asset of the company to be 
     traded away to satisfy debt--particularly debt associated 
     with Charles Hurwitz and the operation of USAT. Moreover, 
     Pacific Lumber and Maxxam have only limited ability to 
     transfer funds or assets among one another. Maxxam could 
     settle the case and be precluded from offering up the forests 
     without the consent of Pacific Lumber's lenders. Pacific 
     Lumber's and Maxxam's quarterly and annual reports indicate 
     that lenders have required that the companies to enter into 
     certain agreements restricting inter-company transfers. Any 
     violation of these agreements would create significant 
     additional legal problems for both Maxxam and Pacific Lumber.
       This is not to argue that such an approach shouldn't be 
     seriously explored. It is to suggest, however, that the 
     negotiations will be difficult and involves a broad array of 
     participants. It would be a complex transaction involving 
     lenders, government agencies, the targeted principals and, 
     potentially, Maxxam's minority shareholders.
     3. The Status of Congressional Action
       As the ``debt for nature'' issue attained a certain degree 
     of public exposure, California's Congressional delegation 
     became active in developing legislation which would 
     facilitate such transactions. In August, 1993 California 
     Congressman Dan Hamburg introduced H.R. 2866 which was to 
     have empowered the government to obtain the old growth 
     redwoods by ``donation, purchase or exchange'' but not 
     condemnation. The Headwater Forest would become a designated 
     wilderness area protected from clear cut harvesting. The bill 
     authorized appropriations to affect the acquisition. Senator 
     Barbara Boxer introduced virtually identical legislation in 
     the Senate. The House bill survived hearings before the 
     Agriculture Committee and the Natural Resources Committee 
     without major alteration and was sent to the floor. In 
     September 1994 it passed the House by a significant margin 
     and was sent to the Senate. Initially, Pacific Lumber 
     vigorously opposed the legislation. In mid-autumn, 1994, the 
     Company changed its position and announced it would support 
     the legislation in light of House amendments which clarified 
     the voluntary nature of any such transfer. No hearings were 
     held in the Senate on the House bill or on Boxer's parallel 
     legislation; no vote was taken in the Senate.
       In the aftermath of the November, 1994 elections, the 
     prospects for this legislation passing either chamber are now 
     very modest. Congressman Hamburg is no longer present to push 
     the issue. His replacement, Congressman Riggs has not shown 
     any interest in the legislation. The new Chairman of the 
     House Natural Resources Committee, Don Young, apparently 
     takes a dim view of the legislation. Senator Boxer has not 
     re-introduced her bill in the 104th congress. It appears that 
     if there is to be such legislation, it will follow--not 
     precede--a negotiated resolution involving the redwoods.
     4. The Qui Tam Action
       On January 26, 1995, Robert Martel, as relator, filed an 
     action in the United States District Court for the Northern 
     District of California pursuant to the qui tam provisions of 
     the False Claims Act. The essence of the action closely 
     tracks the theories presented informally to the FDIC by the 
     Rose Foundation and its allies. Martel argues that the 
     deception and/or dishonesty inherent in the quid pro quo 
     program ultimately amounted to a fraudulent depletion of the 
     insurance fund and, therefore, fits within the reach of the 
     False Claims Act. He seeks not only recovery for the fraud 
     but the imposition of a constructive trust over Pacific 
     Lumber and/or the redwoods and to restrain FDIC settlements 
     unless environmental concerns are taken into account. There 
     are two serious problems with the action. First, it fits very 
     poorly within the framework of the False Claims Act which is 
     designed to accommodate claims against persons or entities 
     who submit fraudulent requests for payment. 31 U.S.C. 
     Sec. 3729 There is no direct, fraudulently induced payment 
     here. Whether more indirect items qualify remains to be 
     seen. Second, such claims can only be based on public 
     knowledge if the relator is the original source. See U.S. 
     et rel. Gold v. Morrison-Knudsen Company, Inc.,   F.Supp.  
     . 1994 WL 673690 (N.D. N.Y.) Here, the claims involve 
     exclusively public information and Martel will have 
     difficulty establishing himself as an original source.
       Pursuant to the False Claims Act qui tam provisions, the 
     government has 60 days within which to advise the court 
     whether it wishes to intervene and take responsibility for 
     the case or leave the case to the relators. 31 U.S.C. 
     Sec. 3730(b)(2). During this time, the case will be kept 
     under seal and held in camera. The defendants have not been 
     served or advised of its existence. The United States 
     Attorney has taken the position, in consultation with the 
     FDIC, that more time is needed before the government can 
     intelligently assess its options in the qui tam setting. 
     Accordingly, papers have been submitted to the Court seeking 
     an extension of an additional 90 days. The relator does not 
     object to the extension.
       There are several options available to the government, 
     including:
       (a) Intervene and stay the case pending negotiations and/or 
     OTS administrative proceedings.
       (b) Intervene and move to dismiss the case, given its 
     failure to meet the requirements of the False Claims Act.
       (c) Intervene and amend the Complaint to plead a more 
     coherent case.
       (d) Leave the case to the relators.
       Whichever option is followed will be a function of 
     discussions between the FDIC and the Department of Justice. 
     These discussions are currently underway at the urging of 
     Williams and DeHenzel. The Office of Thrift Supervision 
     presently seeks little or no contact with the qui tam action. 
     OTS will, however, be kept apprised of the proceedings as it 
     develops its administrative proceedings.
     5. The Endangered Species Act (``ESA'')
       In a November 18, 1994 letter, Richard De Stefano, on 
     behalf of the Rose Foundation, raised for the first time the 
     possibility that the Endangered Species Act may be used to 
     challenge the FDIC's failure to initiate litigation against 
     Maxxam and Hurwitz. De Stefano argues that since ESA mandates 
     that ``. . . all Federal agencies shall seek to conserve 
     endangered species . . . and shall utilize their authorities 
     in furtherance of the purposes [the Act], 16 U.S.C. 
     Sec. 1531(c)(1), the FDIC must take into account the 
     environmental impact on endangered species associated with 
     Pacific Lumber's logging of the redwoods in the agencies 
     decision to sue or not to sue. De Stefano argues, that the 
     decision not to pursue recoveries of the redwoods when there 
     is a legal basis to do so may be a violation of the Act. The 
     cases cited by De Stefano in support of his position involve 
     instances where the link between environmental action and 
     agency action is much more direct See, for example, Pyramid 
     Lake Paiute Tribe v. U.S. Dept. of the Navy, 898 F.2d 1410 
     (9th Cir. 1990) (challenge to Navy's agricultural leasing 
     program which require irrigation as an improper diversion of 
     waters containing endangered species).
       It is unlikely that an ESA challenge to an FDIC failure to 
     sue will succeed. First, although failures to act can be 
     reviewable agency action, cases successfully arguing that 
     position typically involve failure of an Agency to abide by 
     clear regulation or law. The Supreme Court has repeatedly 
     held that decisions to sue are discretionary and outside the 
     realm of judicial review. Thus:
       ``This Court has recognized on several occasions over many 
     years that an agency's decision not to prosecute or enforce, 
     whether through civil or criminal process, is a decision 
     generally committed to an agency's absolute discretion. 
     [citations omitted]. This recognition of the existence of 
     discretion is attributable in no small part to the general 
     unsuitability for judicial review of agency decisions to 
     refuse enforcement.
       ``The reasons for this general unsuitability are many. 
     First, an agency decision not to enforce often involves a 
     complicated balancing of a number of factors which are 
     peculiarly within its expertise. Thus, the agency must not 
     only assess whether a violation has occurred, but whether 
     agency resources are best spent on this violation or another, 
     whether the agency is likely to succeed if it acts, whether 
     the particular enforcement action requested best fits the 
     agency's overall policies, and, indeed, whether the agency 
     has enough resources to undertake the action at all. . . . 
     The agency is far better equipped than the courts to deal 
     with the many variables involved in the proper ordering of 
     its priorities. . . . [ A]n agency's refusal to institute 
     proceedings shares to some extent the characteristics of the 
     decision of a prosecutor . . . not to indict--a decision 
     which has long been regarded as the special province of the 
     [decision-market].'' Heckler v. Chaney, 470 U.S. 821, 831-832 
     (1985).
       Moreover, the standard of review in such circumstances is 
     whether agency action is ``arbitrary and capricious''. Motor 
     Vehicle Manufacturers Association v. State Farm Mutual 
     Insurance Co., 463 U.S. 29 (1983). Given the careful 
     deliberation by the FDIC as to whether to initiate litigation 
     in California, Texas or elsewhere and given the problems 
     associated with any such litigation, the decision not to 
     proceed is simply not arbitrary and capricious. Environmental 
     groups may disagree with the decision (if, indeed, the FDIC 
     determines not to act) but a successful challenge will 
     require much more.

                                  ____
                                  

                               Document X

            Attorney Client Privilege Attorney Work Product

     Memorandum To: Board of Directors, Federal Deposit Insurance 
         Corporation.
     From: Jack D. Smith, Deputy General Counsel.
     Date: July 24, 1995.
     Subject: Status of PLS Investigation; Institution: United 
         States Association of Texas, Houston #1815.

       This memorandum reports on the status of the continuing 
     investigation of the failure of United Savings Association of 
     Texas (``USAT''), the separate investigation being conducted 
     by the Office of Thrift Supervision (``OTS''), current 
     tolling agreements, settlement negotiations with United 
     Financial Group, Inc., (``UFG'') USAT's first tier holding 
     company, and our decision not to recommend an independent 
     cause of action by

[[Page E2452]]

     the FDIC against the former officers and directors of USAT 
     and controlling person Charles Hurwitz.

                             I. Background

       As you know, USAT was placed into receivership on December 
     30, 1988 with assets of $4.6 billion. The estimated loss to 
     the insurance fund is $1.6 billion. After a preliminary 
     investigation into the massive losses at USAT, the FDIC 
     negotiated tolling agreements with UFG, controlling person 
     Charles Hurwitz and nine other former directors and officers 
     of USAT/UFG that were earlier senior officers or directors 
     that were perceived as having significant responsibility over 
     the real estate and investment functions at the institution.
       In May 1994, after a series of meetings with the potential 
     defendants and the exchange of considerable documents and 
     other information, we presented a draft authority to sue 
     memorandum recommending that we pursue claims against Hurwitz 
     and certain of the former officers and directors for losses 
     in excess of $200 million. The proposed claims involved 
     significant litigation risk, in that the bulk of the loss 
     causing events occurred more that two years prior to the date 
     of receivership, and were therefore subject to dismissal on 
     statute of limitations grounds. In light of the Fifth 
     Circuit's opinion in Dawson, a split of authority in the 
     federal trial courts in Texas on the level of culpability 
     required to toll limitations and the Supreme Court's refusal 
     to consider whether a federal rule should be adopted under 
     which negligence by a majority of the directors would toll 
     the statute of limitations, our strategy was to assert that 
     gross negligence was sufficient to the toll the statute of 
     limitations. After briefings with FDIC deputies and further 
     discussion with the potential defendants, we decided to defer 
     formal FDIC approval of our claims and continue the tolling 
     agreements.
       At about the same time that we deferred formal approval of 
     the FDIC cause of action, we developed a new strategy for 
     pursuing these claims through administrative enforcement 
     proceedings with the OTS. After several meetings with senior 
     staff of the OTS Office of Enforcement, we entered into a 
     formal agreement with the OTS, who began an independent 
     investigation into the activities of various directors and 
     officers of USAT, Charles Hurwitz, UFG, as well as USAT's 
     second tier holding company, Maxxam, Inc, a publically traded 
     company that is significally controlled by Hurwitz.

    II. Significant Caselaw Developments Have Further Weakened the 
        Viability of an Independent Cause of Action by the FDIC

       Although we have continued to investigate and refine our 
     potential claims during the pendency of the OTS 
     investigation, two significant court decisions and the 
     failure of Congress to address the statute of limitations 
     problems has further weakened the FDIC's prospects for 
     successfully litigating our claims in United States District 
     Court for the Southern District of Texas.
       In the recent decision of RTC v. Acton, the Fifth Circuit 
     held that under Texas law, only self-dealing or fraudulent 
     conduct, and not gross negligence, is sufficient to toll the 
     statute of limitations under the doctrine of adverse 
     domination. As a result of this opinion, we can no longer 
     rely on any argument that gross negligence by a majority of 
     the culpable Board is sufficient to toll the statute of 
     limitations. Moreover, there is very little, if any, 
     evidence of fraud or self-dealing that is likely to 
     survive a motion to dismiss on statute of limitations 
     grounds.
       Even if we could overcome the statute of limitations 
     problems, a recent decision by the Texas Supreme Court 
     announced a new standard of gross negligence that will be 
     very difficult to meet. In Transportation Insurance Company 
     v. Moriel, 1994 WL 246568 (Tex.), the Texas Supreme Court 
     defined gross negligence as constituting two elements: (1) 
     viewed objectively from the standpoint of the actor, the act 
     or omission must involve an extreme degree of risk, 
     considering the probability and magnitude of the potential 
     harm to others, and (2) the actor must have actual, 
     subjective awareness of the risk involved, but nevertheless 
     proceed in conscious indifference to the rights, safety, or 
     welfare of others. This new standard will make it very 
     difficult, if not impossible to prove our claims.
       The cumulative effect of these recent adverse decisions is 
     that there is a very high probability that the FDIC's claims 
     will not survive a motion to dismiss either on statute of 
     limitations grounds or the standard of care. Because there is 
     significantly less than a 50% chance that we can avoid 
     dismissal, it is our decision not to recommend suit on the 
     FDIC's proposed claims.
     III. Debt for Nature Swap
       Our decision not to sue Hurwitz and the former directors 
     and officers of USAT is likely to attract media coverage and 
     considerable criticism from environmental groups and 
     Congress. Hurwitz has a reputation as a corporate raider, and 
     his hostile takeover of Pacific Lumber has attracted enormous 
     publicity and litigation because of his harvesting of 
     California redwoods. Environmental interests have received 
     considerable publicity in the last two years, suggesting 
     exchanging our claims for trees. We recently met with the 
     Department of the Interior, who informed us that they are 
     negotiating with Hurwitz about the possibility of a debt for 
     nature swap and that the Administration is seriously 
     interested in pursuing such a settlement. We plan to pursue 
     these settlement discussions with the OTS in the coming 
     weeks.
     IV. Updated Authority to Sue Memorandum
       We have attached an updated authority to sue memorandum for 
     your review and consideration. It sets forth the theories and 
     weaknesses of our proposed claims in great detail. It should 
     be considered for Board approval only if the Board decides, 
     as a matter of public policy, that it wants the Texas courts 
     to decide the statute of limitations and standard of care 
     issues rather than FDIC staff. The litigation risks are 
     substantial and the probability of success is very low, but 
     if the Board were to decide that it wants to go forward with 
     the filing of a complaint, we need to be prepared to file the 
     complaint in the Southern District of Texas, on or before, 
     Wednesday, August 2, 1995.
       We will be available to discuss this matter on very short 
     notice.
       1. USAT officers and directors were grossly negligent in 
     causing USAT to invest approximately $180 million in its 
     subsidiary, United MBS, leveraging the investment into $1.8 
     billion of mortgage backed securities (``MBS'') and losing 
     approximately $97 million (including interest) when USAT had 
     already suffered disastrous results in its first MBS 
     portfolio and was in a critically weakened financial state. 
     Approximately $80 million of the $180 million was advanced 
     within two years of the failure.
       2. USAT officers and directors were grossly negligent in 
     failing to act to prevent $50 million of additional losses 
     from USAT's first MBS portfolio. The positions were in place 
     more than two years before failure. Our analysis is that they 
     should have begun to cut their losses, wind down this set of 
     positions, starting two years before failing fiduciary duty 
     and aiding and abetting breaches of fiduciary duty. We 
     believe that it is a good claim on the merits, but we see no 
     viable basis under existing law for avoiding a statute of 
     limitation. Thus, we recommend against asserting this claim.
       ASSESSMENT OF DEFENSES: We expect business judgment rule 
     defenses and serious statute of limitations issues based on 
     recent Fifth Circuit and other Texas case law. Absent a 
     change in the law, there is at least a 70% chance that much 
     or all of the MBS claims will be dismissed based on the 
     statue of limitations. The claim for failing to insist that 
     the net worth maintenance agreements be honored is more 
     likely to minimize statute of limitation motions but raised a 
     . . . .
       SUIT PROFILE: The suit will attract media and Congressional 
     attention because of Hurwitz's reputation in corporate 
     takeovers, and his ownership of Pacific Lumber, which is 
     harvesting redwoods. Environmental interests have received 
     considerable publicity often suggesting exchanging these 
     claims for trees. The Department of Interior recently 
     informed us that the Administration is seriously interested 
     in pursuing such a settlement.
       TIMING AND COST-BENEFIT ANALYSIS: We intend to use Hopkins 
     & Sutter (Chicago/Dallas) and the minority firm Adorno & 
     Zeder (Miami). The estimated cost of litigation by outside 
     counsel is $4 million up to trail, and an additional $2 
     million through trail. We have incurred outside counsel fees 
     and expenses of $4.

            Attorney Client Privilege Attorney Work Product

     Memorandum To: Board of Directors, Federal Deposit Insurance 
         Corporation.
     From: Jack D. Smith, Deputy General Counsel.
     Stephen N. Graham, Associate Director (Operations).
     Date: July 24, 1995.
     Subject: Status of PLS Investigation, Institution: United 
         Savings Association of Houston, Texas #1815.
       This memorandum reports on the status of the continuing 
     investigation of the failure of United Savings Association of 
     Texas (``USAT''), the separate investigation being conducted 
     by the Office of Thrift Supervision (``OTS'') current tolling 
     agreements, settlement negotiations with United Financial 
     Group, Inc., (``UFG'') USAT's first tier holding company, and 
     our decision not to recommend suit by the FDIC against the 
     former officers and directors of USAT and controlling person 
     Charles Hurwitz and other USAT officers and investors. We had 
     agreed to delay a final decision on this matter until after 
     OTS decides whether to pursue claims against Hurwitz. However 
     we were advised on July 21, 1995 that Hurwitz would not 
     extend our tolling agreement with him. Consequently, if suit 
     were to be brought it would have to be filed by August 2, 
     1995. We are taking that unusual step of advising the board 
     of our conclusion that suit should not be brought.
       As you know, USAT was placed into receivership on December 
     30, 1998 with assets of $4.6 billion. The estimated loss to 
     the insurance fund is $1.6 billion. After a preliminary 
     investigation into the massive losses at USAT, the FDIC 
     negotiated tolling agreements with UFG, controlling person 
     Charles Hurwitz and nine other former directors and officers 
     of USAT/UFG that were either senior officers or directors 
     that we perceived as having significant responsibility over 
     the real estate and investment functions at the institution.
       In May 1994, after a series of meetings with the potential 
     defendants and the exchange of considerable documents and 
     other information, we prepared a draft authority to sue 
     memorandum recommending that we pursue claims against Hurwitz 
     and certain of the

[[Page E2453]]

     former officers and directors for losses in excess of $200 
     million. The proposed claims involved significant litigation 
     risk. Most notably, the bulk of the loss causing events 
     occurred more that two years prior to the date of 
     receivership, and were therefore at risk of dismissal on 
     statute of limitations grounds. In light of the Fifth 
     Circuit's opinion in Dawson, a split of authority in the 
     federal trial courts in Texas on the level of (basically 
     because we are likely to loose on statute of limitations 
     grounds) because this matter has been--and is likely to 
     continue to be--highly visible. Culpability required to toll 
     limitations and the Supreme Court's refusal to consider 
     whether a federal rule should be adopted under which 
     negligence by a majority of the directors would toll the 
     statute of limitations, our strategy at that time was to 
     assert that gross negligence was sufficient to the toll 
     the statutes of limitations. After briefings with the 
     deputies to the Directors and further discussion with the 
     potential defendants, we decided to defer FDIC decision on 
     whether to assert our claims and we continued the tolling 
     agreements.
     II. OTS's Involvement
       At about the same time that we deferred a decision on the 
     FDIC's cause of action, we met with OTS staff to discuss the 
     possibilities of OTS pursing these claims, plus a net worth 
     maintenance agreement claim, through administrative 
     enforcement proceedings. After several meetings with senior 
     staff of the OTS Office of Enforcement, we entered into a 
     formal agreement with the OTS, who began an independent 
     investigation into the activities of various directors and 
     officers of USAT, Charles Hurwitz, UFG, as well as USAT's 
     second tier holding company, Maxxam, Inc, a publically traded 
     company that is largely controlled by Hurwitz. The FDIC is 
     paying OTS's costs in connection with this matter.
       The OTS has reviewed extensive documentation and has 
     recently conducted a series of administrative depositions. We 
     have been informed that OTS staff is currently preparing a 
     broad base draft Notice of Charges against Hurwitz and 
     others, including Maxxam, for substantial restitution or 
     unsafe and unsound practices and for enforcement of a net 
     worth maintenance agreement. OTS staff plans to seek formal 
     approval for this case in the relatively near future. Under 
     the terms of our agreement with OTS, FDIC will be the 
     beneficiary of any recovery from the OTS enforcement action 
     through settlement or litigation against the proposed 
     respondent. All of the potential respondents to the OTS 
     investigation have signed tolling agreements with OTC which 
     expire on December 31, 1995.
     III. Significant Caselaw Developments Have Further Weakened 
         the Viability of Suit by the FDIC
       Although we have continued to investigate and refine our 
     potential claims during the pendency of the OTS 
     investigation, two significant court decisions, and the 
     failure of Congress to address the statute of limitations 
     problems, has further weakened the FDIC's prospect for 
     successfully litigating our claims in the United States 
     District Court for the Southern District of Texas.
     A. Statute of Limitations
       In the recent decision of RTC v. Acton, the Fifth Circuit 
     held that under Texas law, only self-dealing or fraudulent 
     conduct, and not gross negligence, is sufficient to toll the 
     two year statute of limitations under the doctrine of adverse 
     domination. As a result of this opinion, we cannot rely on an 
     argument that gross negligence by a majority of the culpable 
     Board members is sufficient to toll the statute of 
     limitations. There is very little, if any, evidence of fraud 
     or self-dealing that is likely to survive a motion to dismiss 
     on statute of limitations grounds.
       A recent decision by the Texas Supreme Court announced a 
     new standard of gross negligence that will be very difficult 
     to meet if it is applied to D&O cases. In Transportation 
     Insurance Company v. Moriel, 1994 WL 246568 (Tex.), the Texas 
     Supreme Court defined gross negligence as constituting two 
     elements: (1) viewed objectively from the standpoint of the 
     actor, the act or omission must involve an extreme degree of 
     risk, considering the probability and magnitude of the 
     potential harm to others, and (2) the actor must have actual, 
     subjective awareness of the risk involved, but nevertheless 
     proceed in conscious indifference to the rights, safety, or 
     welfare of others. The case involved punitive damage issues, 
     but the language in the opinion is sweeping. This new 
     standard if applied would make it very difficult, if not 
     impossible to prove our claims.
       The effect of these recent adverse decisions is that there 
     is a very high probability that the FDIC's claims will not 
     survive a motion to dismiss on statute of limitations 
     grounds. We would also be at an increased risk of dismissal 
     on the merits. Because there is significantly less than a 50% 
     chance that we can avoid dismissal on statute of limitation 
     grounds and because victory the * * * we do not recommend 
     suit on the FDIC's potential proposed claims.
     III. The Pacific Lumber--redwood forest matter
       Our decision not to sue Hurwitz and the former directors 
     and officers of USAT is likely to attract media coverage and 
     criticism from environmental groups and members of Congress. 
     Hurwitz has a reputation as a corporate raider, and his 
     hostile takeover of Pacific Lumber attracted enormous 
     publicity and litigation because of his harvesting of 
     California redwoods. Environmental interests have received 
     considerable publicity in the last two years, suggesting 
     exchanging our D&O claims for the redwood forest. On July * * 
     * we met with representatives of the Department of the 
     Interior, who informed us that they are negotiating with 
     Hurwitz about the possibility of swaping various * * * that 
     the Administration is seriously interested in pursuing such a 
     settlement. We plan to follow up on these settlement 
     discussions with the OTS and Interior in the coming weeks.
     V. Updated (Draft) Authority to Sue Memorandum
       In light of the complexity of visibility of this matter, 
     and the short time frames, we have attached for your 
     information an updated, draft, authority to sue memorandum. 
     It sets forth the theories (and weaknesses) of our proposed 
     claims in some detail. Whether that memorandum sets out a 
     viable claim on the merits should be considered by the Board 
     if the Board decides that it wants the Texas District court 
     to decide the statute of limitations issue rather than FDIC 
     staff. If the Board were to decide to go forward with the 
     filing of a complaint, we need to file the complaint in the 
     Southern District of Texas, on or before, Wednesday, August 
     2, 1995.
       We are available to discuss this matter at your convience.

                                 ______
                                 

     A. Statute of Limitations
       All of the affirmative acts that would form the basis for 
     an FDIC unit occurred more than two years before USAT failed. 
     Thus, the only claims that have any chance of moving a motion 
     to discuss based on statute of limitations are ones based on 
     USAT's failure to unwind some positions in mortgage backed 
     securities and derivative instruments as soon as that should 
     have been done. The statute of limitations risks in this 
     argument are (1) all of the money was originally invested 
     more than two years before failure and (2) if there is a 
     claim based on USAT being late in unwinding these 
     transactions (we think it should have been done by January 1, 
     1987), there is a real likelihood that they should have 
     unwound them more than two years before failure.
     B. The Merits
       The law has also moved against us on the merits of the 
     claims. The claims against Hurwitz are more difficult than 
     usual because he was not an officer or director of USAT. We 
     believe that his involvement rose to the level of a defacto 
     director, but that is a notable hurdle.
       Texas case law has essentially eliminated liability for 
     negligence in the name of applying a very expensive business 
     judgment rule defense.
       We believe the conduct here constitutes gross negligence as 
     that is normally defined. The law in Texas is currently 
     unsettled, but

                           *   *   *   *   *


                                  ____
                                  

            Attorney Client Privilege Attorney Work Product

     Memorandum To: Board of Directors, Federal Deposit Insurance 
         Corporation.
     From: Jack D. Smith, Deputy General Counsel. Stephen N. 
         Graham, Associate Director (Operations).
     Date: July 24, 1995.
     Subject: Status of PLS Investigation, Institution: United 
         Savings Association of Texas--Houston, Texas #1815.
       This memorandum reports on the status of the continuing 
     investigation of the failure of United Savings Association of 
     Texas (``USAT''), the separate investigation of USAT being 
     conducted by the Office of Thrift Supervision (``OTS''), 
     current tolling agreements, settlement negotiations with 
     United Financial Group, Inc., (``UFG'') USAT's first tier 
     holding company, and our decision not to recommend suit by 
     the FDIC against controlling person Charles Hurwitz and other 
     USAT officers and directors.
       We had hoped to delay a final decision on this matter until 
     after OTS decides whether to pursue claims against Hurwitz, 
     et al. However, we were advised on July 21, 1995 that Hurwitz 
     would not extend our tolling agreement with him. 
     Consequently, if suit were to be brought it would have to be 
     filed by August 2, 1995. We are taking the unusual step of 
     advising the Board of our conclusion that suit should not be 
     brought basically because the FDIC is highly likely to lose 
     on statute of limitations grounds because this matter has 
     been--and is likely to continue to be--highly visible. We do 
     not recommend suit.
     I. Background
       As you know, USAT was placed into receivership on December 
     30, 1988 with assets of $4.6 billion. The estimated loss to 
     the insurance fund is $1.6 billion. After a preliminary 
     investigation into the massive losses at USAT, the FDIC 
     negotiated tolling agreements with UFG, controlling person 
     Charles Hurwitz and ten other former directors and officers 
     of USAT/UFG that were either senior officers or directors 
     that were perceived as having significant responsibility over 
     the real estate and investment functions at the institution.
       In May 1994, after a series of meetings with the potential 
     defendants and the exchange of considerable documents and 
     other information, we prepared a draft authority to sue 
     memorandum recommending that we pursue claims against Hurwitz 
     and certain USAT

[[Page E2454]]

     former officers and directors for losses in excess of $200 
     million. The proposed claims involved significant litigation 
     risk. Most notably, the loss causing events occurred more 
     than two years prior to the date of receivership, and were 
     therefore at risk of dismissal on statute of limitations 
     grounds. In light of the Fifth Circuit's opinion in Dawson, a 
     split of authority in the federal trials courts in Texas on 
     the level of culpability required to toll limitations and the 
     Supreme Court's refusal to consider whether a federal rule 
     should be adopted under which negligence by a majority of the 
     directors would toll the statute of limitations, our strategy 
     at that time was to assert that gross negligence was 
     sufficient to toll the statute of limitations. After 
     briefings with the Deputies to the Directors and further 
     discussion with the potential defendants, we decided to defer 
     an FDIC decision on whether to assert our claims, and we 
     continued the tolling agreements.
     II. OTS's Involvement
       At about the same time that we deferred a decision on the 
     FDIC's cause of action, we met with OTS staff to discuss the 
     possibility of OTS pursuing these claims (plus a net worth 
     maintenance agreement claim) through administrative 
     enforcement proceedings. After several meetings with senior 
     staff of the OTS Office of Enforcement, we entered into a 
     formal agreement with the OTS, who began an independent 
     investigation into the activities of various directors and 
     officers of USAT, Charles Hurwitz, UFG, as well as USAT's 
     second tier holding company, Maxxam, Inc., a publicly traded 
     company that is largely controlled by Hurwitz. The FDIC is 
     paying OTS's costs in connection with this matter.
       The OTS has reviewed extensive documentation and has 
     recently conducted a series of administrative depositions. We 
     have been informed that OTS staff is currently preparing a 
     broad-based draft Notice of Charges against Hurwitz and 
     others, including Maxxam, for substantial restitution for 
     unsafe and unsound practices and for enforcement of a net 
     worth maintenance agreement. OTS staff plans to seek formal 
     approval for this case in the relatively near future. Under 
     the terms of our agreement with OTS, FDIC will be the 
     beneficiary of any recovery from the OTS enforcement action 
     through settlement or litigation against the proposed 
     respondents. All the potential respondents of the OTS 
     investigation have signed tolling agreements with OTS which 
     expire on December 31, 1995.
     III. Significant Caselaw Developments Have Further Weakened 
         the Viability of Suit by the FDIC
       Although we have continued to investigate and refine our 
     potential claims during the pendency of the OTS 
     investigation, two significant court decisions, and the 
     failure of Congress to address the statute of limitations 
     problems, have further weakened the FDIC's prospects for 
     successfully litigating our claims in the United States 
     District Court for the Southern District of Texas.
     A. Statute of Limitations
       In the recent decision of RTC v. Acton, 49 F.3d 1086 (5th 
     Cir. 1995), the Fifth Circuit held that under Texas law, only 
     self-dealing or fraudulent conduct, and not gross negligence, 
     is sufficient to toll the two year statute of limitations 
     under the doctrine of adverse domination. As a result of this 
     opinion, we cannot rely on an argument that gross negligence 
     by a majority of the culpable Board members is sufficient to 
     toll the statute of limitations. There is very little, if 
     any, evidence of fraud or self-dealing.
       All of the affirmative acts that would form the basis for 
     an FDIC suit occurred more than two years before USAT failed. 
     Thus, the only claims that have any chance of surviving a 
     motion to dismiss based on statute of limitations grounds are 
     claims based on USAT's failure to unwind some positions in 
     mortgage backed securities and derivative instruments as soon 
     as that should have been done. The statute of limitations 
     risks in this argument are (1) all of the money was put at 
     risk more than two years before failure, and (2) if there is 
     a claim based on USAT being late in unwinding these 
     transactions (we think it should have been done starting no 
     late than January 1, 1987), there is a real likelihood * * * 
     that they should have unwound them more than two years before 
     failure.
       In short, we have an argument for presenting some claims, 
     but that argument is not likely to prevail.
     B. The Merits
       The law has also moved against us on the merits of the 
     claims. The claims against Hurwitz are more difficult than 
     usual because he was not an officer or director of USAT. We 
     believe that his involvement rose to the level of a de facto 
     director, but his status presents a notable hurdle.
       Texas case law has essentially eliminated liability for 
     negligence in the name of applying a very expansive business 
     judgment rule defense. We believe the conduct here 
     constitutes gross negligence as that term is normally 
     defined. The law of gross negligence in Texas is currently 
     unsettled, but a recent decision by the Texas Supreme Court 
     announced a new standard of gross negligence that will be 
     very difficult to meet if it is applied to D&O cases. In 
     Transportation Insurance Company v. Moriel, 879 S.W. 2d 10 
     (Tex. 1994), the Texas Supreme Court defined gross negligence 
     as constituting two elements: (1) viewed objectively from the 
     standpoint of the actor, the act or omission must involve an 
     extreme degree of risk, considering the probability and 
     magnitude of the potential harm to others, and (2) the actor 
     must have actual, subjective awareness of the risk involved, 
     but nevertheless proceed in conscious indifference to the 
     rights, safety, or welfare of others. This new standard, if 
     applied, would make it very difficult, if not impossible to 
     prove our claims (3) further, through legislation Texas has 
     attempted to compare, in essence, `authorizations in FDIC 
     claims.'
       The effect of these recent adverse decisions is that there 
     is a very high probability that the FDIC's claims will not 
     survive a motion to dismiss on statute of limitations ground. 
     We would also be at increased risk of dismissal on the 
     merits. Because there is significantly less than a 50% chance 
     that we can avoid dismissal on statute of limitations 
     grounds, and because even if we survived a statute of 
     limitations motion, victory on the merits (especially on the 
     claims most likely to survive a statute of limitations 
     motion) is uncertain given the state of the law in Texas, we 
     do not recommend suit on the FDIC's potential claim. \4\
     IV. The Pacific Lumber--Redwood Forest Matter
       Our decision not to sue Hurwitz and the former directors 
     and officers of USAT is likely to attract media coverage and 
     criticism from environmental groups and members of Congress. 
     Hurwitz has a reputation as a corporate raider, and his 
     hostile takeover of Pacific Lumber attracted enormous 
     publicity and litigation because of his harvesting of 
     California redwoods. Environmental interests have received 
     considerable publicity in the last two years, suggesting 
     exchanging our D&O claims for the redwood forest. On July 21, 
     we met with representatives of the Department of the 
     Interior, who informed us that they are negotiating with 
     Hurwitz about the possibility of swapping various properties, 
     plus possibly the FDIC/OTS claim, for the redwood forest. 
     They stated that the Administration is seriously interested 
     in pursuing such a settlement. We plan to follow up on these 
     discussions with the OTS and the Department of Interior in 
     the coming weeks.
     V. Updated (Draft) Authority to Sue Memorandum
       In light of the complexity and visibility of this matter, 
     and the short timeframes, we have attached for your 
     information an updated (draft) authority to sue memorandum. 
     It sets forth the theories (and weaknesses) of our proposed 
     claims in some detail. Whether that memorandum sets out a 
     viable claim on the merits should be considered by the Board 
     if the Board decides that it wants the Texas district court 
     to decide the statute of limitations issue rather than FDIC 
     staff. If the Board were to decide to go forward with the 
     filing of a complaint, we need to file the complaint in the 
     Southern District of Texas, on or before, Wednesday, August 
     2, 1995.
       We are available to discuss this matter at your 
     convenience.

                                 ______
                                 

            Attorney Client Privilege Attorney Work Product

     Memorandum To: Board of Directors, Federal Deposit Insurance 
         Corporation.
     From: Jack D. Smith, Deputy General Counsel. Stephen N. 
         Graham, Associate Director (Operations).
     Date: July 27, 1995.
       In addition to presenting the attached authority our 
     memorandum for Board action, this memorandum reports on the 
     status of the continuing investigation of the failure of 
     United Savings Association of Texas (``USAT''), the separate 
     investigation of USAT being conducted by the Office of Thrift 
     Supervision (``OTS''), current tolling agreements, and 
     settlement negotiations with United Financial Group, Inc. 
     (``UFG''), USAT's first tier holding company.
       We were advised on July 21, 1995 that Hurwitz would not 
     extend our tolling agreement with him. Consequently, if suit 
     is to be brought it would have to be filed by August 2, 1995. 
     Hurwitz actions have precluded that possibility. Thus the 
     Board must now decide whether to authorize suit. While we 
     would only sue Hurwitz at this time, rather than dividing the 
     memo and possibly, having to bring it back to deal with other 
     individuals, the attached ATS seeks authorization to sue all 
     of the individuals against whom we would expect to assert 
     claims. In our view Hurwitz and the other proposal defendants 
     were grossly negligent. There is a 70% probability that most 
     or all the conventional claims that could be made in the 
     FDIC's case would be dismissed on statute of limitations 
     grounds. An additional claim against Hurwitz has a better 
     probability on the statute of limitations issue, but there 
     are numerous obstacles to successful prosection of that 
     claim. Under these circumstances the Board must decide 
     whether to authorize a case with these high litigations 
     risks.
       The attached authority to sue, memorandum is summarized at 
     the end of this cover memorandum.
     Background
       As you know, USAT was placed into receivership on December 
     30, 1988. After a preliminary investigation into the massive 
     losses at USAT, the FDIC negotiated tolling agreements with 
     UFG, controlling person Charles Hurwitz and ten other former 
     directors and officers of USAT/UFG who were either senior 
     officers or directors that were perceived as having 
     significant responsibility over the real estate and 
     investment functions at the institution.

[[Page E2455]]

       In May 1994, after a series of meetings with the potential 
     defendants and the exchange of considerable documents and 
     other information, we prepared a draft authority to sue 
     memorandum recommending that we pursue claims against Hurwitz 
     and certain USAT former officers and directors for losses in 
     excess of $200 million. The proposed claims involved 
     significant litigation risk. Most notably, the principal loss 
     causing events occurred more than two years prior to the date 
     of receivership, and were therefore at risk of dismissal on 
     statute of limitations grounds. In light of the Fifth 
     Circuit's opinion in Dawson, a split of authority in the 
     federal trial courts in Texas on the level of culpability 
     required to toll limitations and the Supreme Court's refusal 
     to consider whether a federal rule should be adopted under 
     which negligence by a majority of the directors would toll 
     the statute of limitations, our strategy at that time was to 
     assert that gross negligence was sufficient to the toll the 
     statute of limitations. After briefings with the Deputies to 
     the Directors and further discussion with the potential 
     defendants, we decided to defer an FDIC decision on whether 
     to assert our claims, in order to further investigate the 
     facts, give time for the Texas law on adverse domination to 
     take more concrete shape and ascertain the view of OTS. 
     Therefore, the tolling agreements were continued.
     II. OTS's Involvement
       At about the same time that we deferred a decision on the 
     FDIC's cause of action, we met with OTS staff to discuss the 
     possibility of OTS pursuing these claims (plus a net worth 
     maintenance agreement claim) through administrative 
     enforcement proceedings. After several meetings with senior 
     staff of the OTS Office of Enforcement, we entered into a 
     formal agreement with the OTS, who began an independent 
     investigation into the activities of various directors and 
     officers of USAT, Charles Hurwitz, UFG, as well as USAT's 
     second tier holding company, Maxxam, Inc., a publicly traded 
     company that is largely controlled by Hurwitz. The FDIC is 
     paying OTS's costs in connection with this matter.
       The OTS has reviewed extensive documentation and has 
     recently conducted a series of administrative depositions. We 
     have been informed that OTS staff is currently preparing a 
     broad-based draft Notice of Charges against Hurwitz and 
     others, including Maxxam, for substantial restitution for 
     unsafe and unsound practices and for enforcement of a net 
     worth maintenance agreement. Under the terms of our agreement 
     with OTS, FDIC will be the beneficiary of any recovery from 
     the OTS enforcement action through settlement or litigation 
     against the proposed respondents. All the potential 
     respondents in the OTS investigation, including Hurwitz, have 
     signed tolling agreements with OTS which expire on December 
     31, 1995. OTS staff's current expectation is that they will 
     seek formal approval for this case before the tolling 
     agreements, expire on December 31, 1995.
     III. Significant Caselaw Developments Have Further Weakened 
         the Viability of Suit by the FDIC
       Although we have continued to investigate and refine our 
     potential claims during the pendency of the OTS 
     investigation, two significant court decisions, and the 
     failure of Congress to address the statute of limitations 
     problems, have further weakened the FDIC's prospects for 
     successfully litigating our claims in the United States 
     District Court for the Southern District of Texas.
     A. Statute of Limitations
       In the recent decision of RTC v. Acton, 49 F.3d 1086 (5th 
     Cir. 1995), the Fifth Circuit held that under Texas law, only 
     self-dealing or fraudulent conduct, and not gross negligence, 
     is sufficient to toll the two year statute of limitations 
     under the doctrine of adverse domination. As a result of this 
     opinion, we cannot rely on an argument that gross negligence 
     by a majority of the culpable Board members is sufficient to 
     toll the statute of limitations. There is very little, if 
     any, evidence of fraud or self-dealing.
     B. The Merits
       The law has also moved against us on the merits of the 
     claims. The claims against Hurwitz are more difficult than 
     usual because he was not an officer or director of USAT. We 
     believe that his involvement rose to the level of a de facto 
     director, and for some purposes a control person, but his 
     status presents a notable hurdle.
       Texas case law has essentially eliminated liability for 
     negligence in the name of applying a very expansive business 
     judgment rule defense. We believe the conduct here 
     constitutes gross negligence as that term is normally 
     defined. The law of gross negligence in Texas is currently 
     unsettled, but a recent decision by the Texas Supreme Court 
     announced a new standard of gross negligence that will be 
     very difficult to meet if it is applied to D&O cases. In 
     Transportation Insurance Company v. Moriel, 879 S.W. 2d 10. 
     (Tex. 1994), the Texas Supreme Court defined gross negligence 
     as constituting two elements: (1) viewed objectively from the 
     standpoint of the actor, the act or omission must involve an 
     extreme degree of risk, considering the probability and 
     magnitude of the potential harm to others, and (2) the actor 
     must have actual, subjective awareness of the risk involved, 
     but nevertheless proceed in conscious indifference to the 
     rights, safety, or welfare of others. This new standard, if 
     applied, would make it very difficult, if not impossible, to 
     prove our claims.
       The effect of these recent adverse decisions is that there 
     is a very high probability that much or all of the FDIC's 
     conventional claims will not survive a motion to dismiss on 
     statute of limitations grounds. We would also be at increased 
     risk of dismissal, or loss at trial, on the merits.
     IV. The Pacific Lumber--Redwood Forest Matter
       Any decision regarding Hurwitz and the former directors and 
     officers of USAT is likely to attract media coverage and 
     comment from environmental groups and members of Congress. 
     Hurwitz has a reputation as a corporate raider, and his 
     hostile takeover of Pacific Lumber attracted enormous 
     publicity and litigation because of his harvesting of 
     California redwoods. Environmental interests have received 
     considerable publicity in the last two years, suggesting 
     exchanging our D&O claims for the redwood forest. On July 21, 
     we met with representatives of the Department of the 
     Interior, who informed us that they are negotiating with 
     Hurwitz about the possibility of swapping various properties, 
     plus possibly the FDIC/OTS claim, for the redwood forest. 
     They stated that the Administration is seriously interested 
     in pursuing such a settlement.* * * We plan to follow up on 
     these discussions with the OTS and the Department of Interior 
     in the coming weeks. * * * the Hurwitz tolling agreement * *  
     expires, we * * *

                                 ______
                                 

                                 DRAFT

            Attorney Client Privilege Attorney, Work Product

     Memorandum To: Board of Directors, Federal Deposit Insurance 
         Corporation.
     From: Jack D. Smith, Deputy General Counsel. Stephen N. 
         Graham, Associate Director (Operations)--DAS.
     Date: July 24, 1995.
     Subject: Status of PLS Investigation, Institution: United 
         Savings Association of Texas--Houston, Texas #1815.
       This memorandum reports on the status of the continuing 
     investigation of the failure of United Savings Association of 
     Texas (``USAT''), the separate investigation of USAT being 
     conducted by the Office of Thrift Supervision (``OTS''), 
     current tolling agreements, settlement negotiations with 
     United Financial Group, Inc. (``UFG''), USAT's first tier 
     holding company, and our decision not to recommend suit by 
     the FDIC against controlling person Charles Hurwitz and other 
     USAT officers and directors.
       We had hoped to delay a final decision on this matter until 
     after OTS decides whether to pursue claims against Hurwitz, 
     et al. However, we were advised on July 21, 1995 that Hurwitz 
     would not extend our tolling agreement with him. 
     Consequently, if suit were to be brought it would have to be 
     filed by August 2, 1995. We are not recommending suit because 
     there is a 70% probability that most or all the FDIC case 
     would be dismissed on statute of limitations grounds. Under 
     such circumstances the staff would ordinarily close out the 
     investigation under delegated authority. However, because of 
     the high profile nature of this case (evidenced by numerous 
     letters from Congressmen and environmental groups), we are 
     advising the Board in advance of our action in case there is 
     a contrary view.
     I. Background
       As you know, USAT was placed into receivership on December 
     30, 1988 with assets of $4.6 billion. The estimated loss to 
     the insurance fund is $1.6 billion. After a preliminary 
     investigation into the massive losses at USAT, the FDIC 
     negotiated tolling agreements with UFG, controlling person 
     Charles Hurwitz and ten other former directors and officers 
     of USAT/UTF who were either senior officers or directors that 
     were perceived as having significant responsibility over the 
     real estate and investment functions at the institution.
       In May 1994, after a series of meetings with the potential 
     defendants and the exchange of considerable documents and 
     other information, we prepared a draft authority to sue 
     memorandum recommending that we pursue claims against Hurwitz 
     and certain USAT former officers and directors for losses in 
     excess of $200 million. The proposed claims involved 
     significant litigation risk. Most notably, the principal loss 
     causing events occurred more that two years prior to the date 
     of receivership, and were therefore at risk of dismissal on 
     statute of limitations grounds. In light of the Fifth 
     Circuit's opinion in Dawson, a split of authority in the 
     federal trial courts in Texas on the level of culpability 
     required to toll limitations and the Supreme Court's refusal 
     to consider whether a federal rule should be adopted under 
     which negligence by a majority of the directors would toll 
     the statute of limitations, our strategy at that time was to 
     assert that gross negligence was sufficient to the toll the 
     statute of limitations. After briefings with the Deputies to 
     the Directors and further discussion with the potential 
     defendants, we decided to defer an FDIC decision on whether 
     to assert our claims, in order to further investigate the 
     facts, give time for the Texas law on adverse domination to 
     take more concrete shape and ascertain the views of OTS. 
     Therefore, the tolling agreements were continued.
      II. OTS's Involvement
       At about the same time that we deferred a decision on the 
     FDIC's cause of action, we met with OTS staff to discuss the 
     possibility of OTS pursuing these claims (plus a net

[[Page E2456]]

     worth maintenance agreement claim) through administrative 
     enforcement proceedings. After several meetings with senior 
     staff of the OTS Office of Enforcement, we entered into a 
     formal agreement with the OTS, who began an independent 
     investigation into the activities of various directors and 
     officers of USAT, Charles Hurwitz, UFG, as well as USAT's 
     second tier holding company, Maxxam, Inc, a publically traded 
     company that is largely controlled by Hurwitz. The FDIC is 
     paying OTS's costs in connection with this matter.
       The OTS has reviewed extensive documentation and has 
     recently conducted a series of administrative depositions. We 
     have been informed that OTS staff is currently preparing a 
     broad-based draft Notice of Charges against Hurwitz and 
     others, including Maxxam, for substantial restitution for 
     unsafe and unsound practices and for enforcement of a net 
     worth maintenance agreement. OTS staff plans to seek formal 
     approval for this case in the relatively near future. Under 
     the terms of our agreement with OTS, FDIC will be the 
     beneficiary of any recovery from the OTS enforcement action 
     through settlement or litigation against the proposed 
     respondents. All the potential respondents in the OTS 
     investigation, including Hurwitz, have signed tolling 
     agreements with OTS which expire on December 31, 1995.
     III. Significant Caselaw Developments Have Further Weakened 
         the Viability of Suit by the FDIC
       Although we have continued to investigate and refine our 
     potential claims during the pendency of the OTS 
     investigation, two significant court decisions, and the 
     failure of Congress to address the statute of limitations 
     problems, have further weakened the FDIC's prospects for 
     successfully litigating our claims in the United States 
     District Court for the Southern District of Texas.
     A. Statute of Limitations
       In the recent decision of RTC v. Action, 49 F.3d 1086 (5th 
     Cir. 1995), the Fifth Circuit held that under Texas law, only 
     self-dealing or fraudulent conduct, and not gross negligence, 
     is sufficient to toll the two year statute of limitations 
     under the doctrine of adverse domination. As a result of this 
     opinion, we cannot rely on an argument that gross negligence 
     by a majority of the culpable Board members is sufficient to 
     toll the statute of limitations. There is very little, if 
     any, evidence of fraud or self-dealing.
       All of the affirmative acts that would form the basis for 
     an FDIC suit occurred more than two years before USAT failed. 
     Thus, the only claims that have any chance of surviving a 
     motion to dismiss based on statute of limitations grounds are 
     claims based on USAT's failure to unwind some positions in 
     mortgage backed securities and derivative instruments as soon 
     as that should have been done. The statute of limitations 
     risks in this argument are (1) all of the money was put at 
     risk more than two years before failure, and (2) if there is 
     a claim based on USAT being late in unwinding these 
     transactions (we think it should have been done starting no 
     later than January 1, 1987), there is a real likelihood of a 
     court finding that they should have unwound them more than 
     two years before failure.
       In short, we have an argument for pursuing some claims, but 
     that argument is not likely to prevail.
     B. The Merits
       The law has also moved against us on the merits of the 
     claims. The claims against Hurwitz are more difficult than 
     usual because he was not an officer or director of USAT. We 
     believe that his involvement rose to the level of a de facto 
     director, but his status presents a notable hurdle.
       Texas case law has essentially eliminated liability for 
     negligence in the name of applying a very expansive business 
     judgment rule defense. We believe the conduct here 
     constitutes gross negligence as that term is normally 
     defined. The law of gross negligence in Texas is currently 
     unsettled, but a recent decision by the Texas Supreme Court 
     announced a new standard of gross negligence that will be 
     very difficult to meet if it is applied to D&O cases. In 
     Transportation Insurance Company v. Moriel, 879 S.W.2d 10 
     (Tex. 1994), the Texas Supreme Court defined gross negligence 
     as constituting two elements: (1) viewed objectively from the 
     standpoint of the actor, the act or omission must involve an 
     extreme degree of risk, considering the probability and 
     magnitude of the potential harm to others, and (2) the actor 
     must have actual, subjective awareness of the risk involved, 
     but nevertheless proceed in conscious indifference to the 
     rights, safety, or welfare of others. This new standard, if 
     applied, would make it very difficult, if not impossible, to 
     prove our claims.
       The effect of these recent adverse decisions is that there 
     is a very high probability that the FDIC's claims will not 
     survive a motion to dismiss on statute of limitations 
     grounds. We would also be at increased risk of dismissal on 
     the merits. Because there is only a 30% chance that we can 
     avoid dismissal on statute of limitations grounds, and 
     because even if we survived a statute of limitations 
     motion, victory on the merits (especially on the claims 
     most likely to survive a statute of limitations motion) is 
     uncertain given the state of the law in Texas, we do not 
     recommend suit on the FDIC's potential claims.
     IV. The Pacific Lumber--Redwood Forest Matter
       A decision not to sue Hurwitz and the former directors and 
     officers of USAT is likely to attract media coverage and 
     criticism from environmental groups and members of Congress. 
     Hurwitz has a reputation as a corporate raider, and his 
     hostile takeover of Pacific Lumber attracted enormous 
     publicity and litigation because of his harvesting of 
     California redwoods. Environmental interests have received 
     considerable publicity in the last two years, suggesting 
     exchanging our D&O claims for the redwood forest. On July 21, 
     we met with representatives of the Department of the 
     Interior, who informed us that they are negotiating with 
     Hurwitz about the possibility of swapping various properties, 
     plus possibly the FDIC/OTS claim, for the redwood forest. 
     They stated that the Administration is seriously interested 
     in pursuing such a settlement. This is feasible with perhaps 
     some new modest legislative authority because USAT is a FRF 
     institution and therefore USAT recoveries redound to the 
     benefit of the U.S. Treasury. We plan to follow up on these 
     discussions with the OTS and the Department of Interior in 
     the coming weeks. When the Hurwitz tolling agreement expires, 
     we would recommend that we update those Congressmen who have 
     inquired about our investigation and make it clear that this 
     does not end the matter of Hurwitz's liability for the 
     failure of USAT because of the ongoing OTS investigation.
     V. Updated (Draft) Authority to Sue Memorandum
       In light of the complexity and visibility of this matter, 
     and the short timeframes, we have attached for your 
     information an updated (draft) authority to sue memorandum. 
     It sets forth the theories (and weaknesses) of our proposed 
     claims in some detail. Whether that memorandum sets out a 
     viable claim on the merits should be considered by the Board 
     if the Board decides that it wants the Texas district court 
     to decide the statute of limitations issue rather than FDIC 
     staff. If the Board were to decide to go forward with the 
     filing of a complaint, we need to file the complaint in the 
     Southern District of Texas, on or before, Wednesday, August 
     2, 1995. If the Board has no objection to the proposed staff 
     action to allow the tolling agreements to expire, the Board 
     need take no formal action.
       We are available to discuss this matter at your 
     convenience.
     Concur: William F. Kroener, III, General Counsel.
     Concur: John F. Bovenzi, Director, DAS.

                                  ____
                                  

                               APPENDIX 2

                                Record 1

     To: Robert DeHenzel.
     Cc: Ben Groner, James Cantrell.
     From: Paul Springfield
     Subject: Strange Call--United S&L Houston, TX.
     Date: Friday, November 19, 1993.

       Bob, yesterday, Mary Saltzman sent an E-mail to Ben Groner 
     and me regarding a call she received from an individual named 
     Bob Close. I will also forward her E-Mail to you. Yesterday 
     afternoon an individual who identified himself as Bob Close 
     called me. His primary question was that he wished to speak 
     to the individual who was investigating the United S&L 
     failure. I asked him the reason for his request and who he 
     was. His reponse was that he was working with some 
     environmental groups and he understood that FDIC had a claim 
     against United for $532 MM (I believe this is the amount 
     stated) and he referred to Charles Hurwitz specifically and 
     to Taxpayers money lost in the institution. Seems like the 
     amount of loss stated was $1.9 Billion. He went on to say 
     that people like Hurwitz needed to be ``stopped''. He also 
     related that he was working with a group in New York 
     identified as ``Wetlands'' and in Northern California a group 
     called ``EPIC''. He gave the name this stood for which I do 
     not recall, but it was environmental something. I asked him 
     what was the source of his information and the purpose of his 
     call. He was vague about the purpose but related the 
     following names as sources of his information.
       Attorney; Bob Bertain and Investigator; Bob Martell, both 
     in Northern California. He also gave a telephone number where 
     he could be reached later in the week * * *He indicated this 
     was in Acadia California. He said he was currently in New 
     York. He indicated this was in Acadia California. He said he 
     currently in New York until today and could be reached 
     through James Hansen * * *
       Frankly, I do not know whether this individual is some kind 
     of radical Tree Hugger on a mission to save the forest in 
     California or someone seeking to confirm whether FDIC is in 
     process of going after Hurwitz and United. I am a little 
     suspicious, however, as to the motives stated by the 
     individual, in light of the specific dollar figures he 
     related in the conversation but I do not want to come across 
     sounding paranoid. I did not relate to him who was assigned 
     to the Investigation or that I worked in Investigations. 
     Further, I did not ask him how he obtained my name and 
     telephone #.
       I do not know whether to ignore this situation or not but I 
     feel certain the individual will call me again since he was 
     my name and in the course of the convervation I related that 
     I would need to look into his request to talk to the 
     Investigator. This was simply a ploy to obtain information 
     from him.
       There is a possibility you may wish to speak to this 
     individual to determine whether he may have information that 
     is beneficial to our cause if he is who he says he is. If so, 
     please advise and I will relate this to

[[Page E2457]]

     him; otherwise, I will do nothing and if he calls I will 
     state that his request to speak to the Investigator cannot be 
     granted. If you wish to discuss this further, call me at * * 
     *

     To: Mary Saltzman, Ben Groner.
     Cc: Martha F. Boyles-Hance.
     From: Paul Springfield.
     Subject: United S&L--Strange Call.
     Date: Monday, November 22, 1993.
     Forwarded by: Paul Springfield.

     Forwarded to: James Cantrell.
     Forwarded date: Monday, November 22, 1993.
     Comments by: Paul Springfield.
     Comments: Jim. FYI.

                           [Original Message]

       I had a conversation with PLS attorney Bob DeHenzel, Friday 
     afternoon, 11-19-93, to devise an approach as to the 
     appropriate manner to deal with the inquiry from Dan Close. 
     We determined that Mr. Close was to pose his inquiry in 
     written form and address it directly to DeHenzel. I related 
     this information to Close via another party that answered the 
     telephone # he had left.
       DeHenzel indicated he had some knowledge about the nature 
     of the inquiry as well as the attorney Bill Bertain disclosed 
     by Close. DeHenzel stated that this group was involved in 
     fighting a take over action of some company by Hurwitz 
     involving forest property in the northwestern United States. 
     Apparently they are trying to obtain information to utilize 
     in their efforts.
       Hopefully, this will close the book, at least from the 
     Investigative perspective. Everyone, have a great holiday.

     To: Paul Springfield.
     Cc: Ben Groner.
     From: Mary Saltzman.
     Subject: re: Strange Call-United S&L Houston, Tx.
     Date: Monday, November 22, 1993.
     Forwarded by: Paul Springfield.

     Forwarded to: James Cantrell.
     Forwarded date: Monday, November 22, 1993.
     Comments by: Paul Springfield.
     Comments: Whoops. Sent the wrong one earlier.

     Forwarded to: Ben Groner.
     Cc: Martha F. Boyles-Hance.
     Forwarded date: Monday, November 22, 1993.
     Comments by: Paul Springfield.
     Comments: Ben, the E-Mail being forwarded seems to indicate 
         where the party obtained my name. You will receive 
         another E-Mail from me that should conclude this matter, 
         at least for now. Thanks.

                           [Original Message]

       Thanks for fielding that one, Paul! I received the first 
     call late on Thursday and checked the institution on DOLLAR$. 
     His comments were too close to be comfortable, and with all 
     the bad publicity we have had in the Scripps Howard papers 
     lately I didn't feel I could pass him off to an ombudsman who 
     might or might not understand the confidentiality of our 
     claims. Anyway, at that hour I felt it was better to pass him 
     directly on to you or to Ben so that you could deal with him. 
     Sounds like you got some information from him. The excitement 
     never ends. Haven't seen you in a while, hope all is well 
     with you. Have a good Holiday. .MMS

                                  ____
                                  

                               Record 1A

               [From the Trees Foundation, July 17, 2000]

                    A Final Push for Debt for Nature

                        (By the Rose Foundation)

       For six years, the Rose Foundation has worked with other 
     activists to save Headwaters Forest through a Debt for Nature 
     land swap. Debt for Nature means resolving hundreds of 
     millions in pending federal claims against Maxxam in exchange 
     for public title to ancient redwoods and other sensitive 
     habitat in the Headwaters Forest area. Rose has researched 
     and documented the factual and legal basis for FDIC and 
     Treasury Department suits against Maxxam and CEO Charles 
     Hurwitz. The suits seek $800+ million restitution for the 
     failure and taxpayer bailout of Maxxam/Hurwitz' Texas Savings 
     and Loan. Maxxam credits Rose with catalyzing the suits. We 
     also led shareholder campaigns for four years to reform 
     Maxxam's corporate governance and forest management 
     practices. In the most recent campaign (which Maxxam 
     presented as ``a referendum on Debt For Nature''), 80% of the 
     shares outside of Hurwitz' control voted for our resolutions, 
     and almost 50% voted to toss out Maxxam's Board in favor of 
     our candidates.
       It's now or never for Debt for Nature. The Treasury Dept. 
     is all but concluded. This summer, the judge will make an 
     advisory ruling to the director of the Treasury's banking 
     regulatory division. The director will then issue a 
     restitution order. We believe Treasury has proven its case, 
     and a large restitution order is imminent. Maxxam has many 
     reasons to settle, and to offer forestlands instead of cash:
       A huge cash judgment could bankrupt Maxxam.
       Some of Maxxam's largest investors tell us that they prefer 
     debt for nature to a cash payment.
       Debt for Nature is a win-win. Maxxam could trade 
     forestlands which they can't cut profitably (but are 
     environmentally priceless) in exchange for settling the 
     federal claims and resolving some of Maxxam's most pressing 
     and costly environmental disputes.
       But FDIC & Treasury's position is that their mandate is to 
     recover cash, not forest. If they took Headwaters forestlands 
     in lieu of cash, their mandate would be to liquidate the 
     property or demand an equal value exchange from Interior or 
     BLM. An existing law (Coastal Barrier Resources Act) already 
     allows banking regulatory agencies to transfer property they 
     acquire which is adjacent to an existing reserve, to resource 
     management agencies. Rose seeks an amendment which would 
     clarify that the banking agencies could donate such property 
     to resource management agencies--avoiding the unacceptable 
     situation of forcing Interior to liquidate some other 
     holdings in exchange for saving the Headwaters. FDIC (which 
     has acknowledged that it is funding Treasury's case) would be 
     much more aggressive in pursuing a Debt for Nature settlement 
     if they had Congressional approval to donate recovered 
     Headwaters forestlands to Interior. The amendment would also 
     be good policy in its own right--our research has already 
     uncovered four other examples where such a policy would have 
     facilitated public acquisition of properties that Interior 
     was already trying to conserve.
       We need to make significant progress in this Congress to 
     show FDIC/Treasury that Debt For Nature is worth considering. 
     We also need to continue to keep the heat on Hurwitz through 
     his stockholders to force Maxxam to agree to a Debt For 
     Nature settlement.
       It will not be an easy fight. Several Members of Congress, 
     including House Majority Whip Tom DeLay (R-TX), and Resources 
     Committee Chair Don Young (R-AK), have demanded access to all 
     of FDIC and OTS' sensitive legal research and background 
     information that is crucial to their case. More chilling from 
     a constitutional and public liberty standpoint, Congressman 
     Young is demanding all records of any communications with 
     activists and organizations who support Debt For Nature--
     including specifically Rose, Trees Foundation, EPIC, Sierra 
     Club, and many others. We believe Congressman Young's actions 
     are a clear abuse of Congressional subpoena authority and a 
     heavy-handed attempt to dissuade citizens from exercising 
     their constitutional right to petition the government 
     regarding issues of concern.
       People can contact their Congressional and Senate 
     representatives to ask them to support Debt for Nature and do 
     everything in their power to ease a Debt for Nature swap for 
     the agencies. It could help save the Headwaters today, and 
     other valuable and threatened habitat tomorrow.


                                Record 2

       In light of the magnitude of the losses and the FDIC's well 
     considered evaluation of liability, I am particularly 
     concerned that a formal action has not yet been filed. 
     Although the FDIC has not publicly quantified the claim, the 
     UFG's 10-K estimated the claim of $545 million failure to 
     maintain the minimum net worth and failure to remit tax 
     returns alone.
       My concern about this matter has been heightened by my 
     colleague Dan Hamburg, who recently introduced legislation to 
     acquire ancient redwood forests owned by Pacific Lumber 
     Company (PALCO). Principals in PALCO who acquired the company 
     in 1985 with Drexel Burnham/Milken high yield bonds were also 
     involved in the UFG/USAT transactions. Evaluation of their 
     liabilities to the Federal government becomes particularly 
     critical as the prospect of payment for property acquisition 
     proceeds.
       I would appreciate your earliest possible response.
           Sincerely,
                                                Harry B. Gonzalez,
                                                         Chairman.

       The Failure of United Savings Association of Texas (USAT)


                               Fact Sheet

       The FDIC has an outstanding claim against United Financial 
     Group, holding company for the failed USAT in excess of $548 
     million dollars. (United Financial Group 10-K Report year 
     ending 12/31/92).
       Five years have passed since this claim was asserted in 
     1988, and while the FDIC has extended the statute of 
     limitations through tolling agreements, the current statute 
     of limitations ends on December 30, 1998. (UFG 10-K Report 
     year ending 12/31/92).
       When it was seized in 1988 by the FDIC, USAT was a wholly-
     owned subsidiary of United Financial Group whose controlling 
     shareholders at the time of the collapse was Charles Hurwitz-
     run companies MAXXAM, MCO, and Federated Development Corp. 
     Also, Drexel, Burnham, Lambert was a 8% shareholder 
     (Washington Post, 4/16/91, MAXXAM Prospectus, 1988 and FDIC 
     v. Milken).
       From 1986 to 1988, USAT purchased over $1.3 billion worth 
     of Drexel-underwritten junk bonds. During that same period of 
     time, according to an FDIC lawsuit against Michael Milken, 
     ``the Milken group raised about $1.8 billion of financing for 
     Hurwitz's takeover venture,'' which included the 1988 
     takeover of the Pacific Lumber Company, the world's largest 
     producer of old growth redwood. (FDIC v. Milken).
       According to Fortune, the failure of USAT constituted the 
     fifth largest failed S&L bailout, as of 1990, costing the 
     taxpayers $1.6 billion. (Fortune, 8/10/90).

                                  ____
                                  

                               Record 2A

       Meeting with Rep. Hamburg
       Hamburg--Wanted to have the meeting. Have an immediate 
     interest in the case. Interested enough over potential filing 
     of complaint to ask what is about to proceed. Realized that 
     this possible avenue would be lost.

[[Page E2458]]

     Received letter from * * *. Hope to get decision by May '94.
       What is status of investigation? What are key factors? Is 
     there specific date by which intend to make decision? What 
     other agencies involved? Who is working on case? Multiple 
     attorneys? Reoccurring learning curve? Interesting to me as 
     to why it takes so long on 5th largest S&L failure in 
     country.
       Smith--Failure in Dec. 1988. Very difficult to do a swap 
     for trees. The investigation has looked at several areas. 
     Claim on the net worth maintenance agents.
       Thomas--Have been attempts to enforce this. We can't find 
     signed agent before FSLIC. We've never found the agent. Are 
     claims Hurwitz has signed * * * agent to 3/1.
       J. Smith--We look for wrongdoing. Some might meet our 
     standards. We look at is it a good case and is it cost 
     efficient. Are looking claims that in most optimistic dreams 
     of it would be.
       If can convince other side that we have claim worth $400 
     million they want to settle. Could be a hook into the holding 
     co.
       Copy of testimony and Dawson case.
       Dept. of Labor.
       SEC Kate Anderton--Rep. Hamburg.
       2/3/94
       Congressman Hamburg; Kate Anderton; Kelsy Meek
       Armando,--Tip us off about the law firm don't have $600/hr 
     red flag.
       39,000--cut over
       5,000 acres--left old growth
       Cutting of the groves is limited by endangered species
       J. Thomas higher risk than most.
       Civil money penalties--have any deposition been taken.
       DOL--pension lawsuit Exec. Life against Exec. Life Maxxam
       SEC--filings against Maxxam call

                                  ____
                                  

                                Record 5

                                                 February 2, 1994.


           PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT

     Memorandum To: Jack D. Smith, Deputy General Counsel.
     From: Patricia F. Bak, Counsel and Robert J. DeHenzel, Jr., 
         Senior Attorney.
     Subject: United Savings Association of Texas Net Worth 
         Maintenance Claims.
       This memorandum summarizes potential claims by the FDIC and 
     the OTS against United Financial Group, Inc. (``UFG'', for 
     failure to maintain the net worth of United Savings 
     Association of Texas (``USAT'') as required by federal 
     regulation. Based on our review, we conclude that the FDIC 
     has no viable claim against UFG for failure to maintain 
     USAT's net worth pursuant to a net worth maintenance 
     (``NWM'') stipulation. Although a number of federal courts 
     have held that federal banking agencies acting as receivers 
     for failed financial institutions do not have a private right 
     of action for breach of NWM stipulations, the Court of 
     Appeals for the Fifth Circuit has held that such regulatory 
     commitments are enforceable in cease and desist proceedings, 
     even post receivership. Accordingly, the OTS may be able to 
     pursue a NWM claim against UFG for failure to maintain USAT's 
     net worth, pursuant to 12 USC Sec. 1818(b)1. This 
     administrative proceeding must be commenced on or before 
     December 30, 1994, within six years of USAT's failure. It is 
     unclear whether OTS has a viable claim against MCO Holdings, 
     Inc. (``MCO'') and Federated Development Corp. (``FDC''), 
     which together owned at least 23% of UFG, although an 
     argument could be made that MCO/FDC functioned as a de facto 
     Savings and Loan Holding Company (``SLHC'') and should be 
     responsible for maintaining USAT's net worth.
     I. Background
       In 1982, Charles Hurwitz, a well-known Houston investor 
     active in corporate acquisitions and divestitures, formulated 
     a plan to combine two Houston-based savings and loans holding 
     companies, UFG (which owned 100 percent of USAT) and First 
     American Financial of Texas (``First American''). He 
     effectuated the acquisition by acquiring 23.3% of UFG's stock 
     through MCO and FDC, both of which he controlled, for 
     approximately $7.6 million.
       The FHLBB approved UFG's merger with First American on 
     April 29, 1983 by Resolution No. 83-252 (the ``Resolution''). 
     First American was merged into UFG and First American's 
     insured subsidiary was merged into USAT. Approval was 
     conditioned upon UFG maintaining the net worth of USAT at 
     regulatory mandated levels and upon USAT not paying dividends 
     exceeding 50 percent of USAT's yearly ``net income.''
       The NWM commitment was contained in Paragraph 6 of the 
     Resolution. It provided, in pertinent part, that UFG: ``shall 
     stipulate to the [FSLIC] that as long as it controls [USAT], 
     [UFG] will cause the net worth of [USAT] to be maintained at 
     a level consistent with that required by Section 563.13(b) of 
     the Rules and Regulations of the [FSLIC] . . . . and, as 
     necessary, will infuse sufficient additional equity capital, 
     in a form satisfactory to the Supervisory Agent, to effect 
     compliance with such requirement.''
       The Resolution also required UFG to file a certification 
     with the Supervisory Agent, within 30 days of the 
     acquisition, stating the effective date of the acquisition 
     and that the acquisition had been consummate and in 
     accordance with the provisions of all applicable law, and 
     regulations. UFG and Hurwitz deny, and we have been unable to 
     establish that they signed a NWM stipulation or a capital 
     maintenance agreement with the FHLBB.
     II. Utilization of USAT to Upstream Dividends to UFG
       Hurwitz gained control of USAT for an initial investment of 
     less than $8 million, yet in 1984, he caused USAT to sell 
     off approximately one-half of its retail branch network, 
     and on the basis of profits booked on these sales, USAT 
     issued a cash dividend of $32,687,218 to UFG on March 18, 
     1985. Initially, this dividend was used to fund parent 
     company operations and without it, UFG would have 
     experienced serious financial problems. In June 1988, some 
     of the remaining proceeds were used to retire a 
     substantial part of UFG's acquisition debt.
       The issuance of this dividend to UFG based on a one-time 
     asset sale was imprudent. At the time of the dividend, USAT 
     was unable to generate profit from continuing operations and 
     the reduction in its regulatory net worth as a result of this 
     transaction was likely to require capital infusions. Further, 
     while USAT reported Regulatory Capital of $207 million at the 
     time the dividend was declared, USAT was not reporting itself 
     insolvent only because it had ``goodwill'' of $256 million on 
     its books as a result of USG's acquisition of three other 
     thrifts between 1981 and 1983. Absent goodwill, USAT would 
     have had a negative net worth of $49 million at the time the 
     dividend was paid.
       Although regulators expressed ``no supervisory objection'' 
     to the dividend before it was paid, there is evidence that 
     they were misled by USAT. Moreover, beginning in late 1985, 
     when USAT did, in fact, require additional capital, UFG 
     declined to return this dividend to USAT through a capital 
     infusion. When it became certain that the FHLB would demand 
     that UFG contribute additional capital to USAT, Hurwitz 
     obtained FHLBB approval for his plan to use UFG's assets, 
     which included the dividend from USAT, to retire its 
     acquisition debt. He obtained approval by using his purported 
     willingness to contribute capital to USAT via a Southwest 
     Plan transaction involving USAT.
       USAT admitted a failure to comply with net worth 
     requirements as of December 31, 1987. On May 13, 1988, the 
     FHLB-Dallas directed UFG to infuse additional equity into 
     USAT sufficient to meet minimum regulatory capital 
     requirements. UFG did not comply. On December 8, 1988, the 
     FHLB-Dallas issued a second written directive to UFG. UFG 
     again refused to comply. On December 30, 1988, FSLIC was 
     appointed receiver of USAT and continued to make net worth 
     demands on UFG, which were not honored.
     III. Potential Claims by the FDIC-Receiver
       Federal Courts have uniformly held that the FDIC, the RTC 
     and the FSLIC as receiver of failed financial institutions 
     have no implied private or federal common law cause of action 
     to enforce the terms of NWM agreements. FSLIC v. Savers, 
     Inc., No. LR-C-89-529 (E. D. Ark. 1989); RTC v. Tetco, 758 F. 
     Supp. 1159 (W. D. Tex. 1990); and In Re Conner Corp., 127 B. 
     R. 775 (E. D. N. C. 1991). All three of these decisions 
     relied upon FSLIC v. Capozzi, 855 F.2d 1319 (8th Cir. 1988), 
     vacated on other grounds, 490 U.s. 1062 (1989), which held 
     that implying a private right of action for violation of 
     thrift regulations would not comport with the purposes of the 
     underlying statutory framework; the court deemed those 
     purposes to be prospective rather than compensatory.
       In Savers, the court also found that a holding company's 
     net worth maintenance commitment was not enforceable as a 
     private contract because the holding company was required by 
     law to comply with the net worth maintenance regulation, and 
     therefore its commitment to abide by the regulation was not 
     ``bargained for'' consideration which would support a 
     contract.
       While the bankruptcy court in Conner similarly held that a 
     holding company's promise to maintain the net worth of a 
     savings and loan association did not constitute legal 
     consideration, the court also held that the NWM stipulation 
     did not constitute ``offer and acceptance'' that would give 
     rise to a legally binding contract.
       The Tetco court did not agree with the Conner and Savers 
     analysis of consideration. The Tetco court did, however, 
     agree with Conner that a NWM condition in a resolution 
     granting deposit insurance was a statement setting forth a 
     regulatory condition, and a net worth stipulation was merely 
     an acknowledgment of regulatory requirements--statements 
     which did not constitute a legally binding contract. The 
     court noted: ``The terms of the net worth agreement and the 
     regulatory approvals were never the subject of negotiations 
     between the parties; their scope and effect were preordained 
     to the letter by the regulators. The Court believes there is 
     no genuine issue of material fact that the parties' intent 
     was to fulfill the prerequisites of a regulatory blueprint. 
     It was not to create independent contractual obligations. 758 
     F.Supp at 1162.''
       The court further concluded that the NWM commitment did not 
     involve ``the type of comprehensive agreement'' that could, 
     independent of the regulations, be said to create existing 
     rights and obligations within the meaning of FIRREA or 
     contract.
       Finally, the court held that there is no private right of 
     action to enforce a regulatory net worth maintenance 
     condition, citing Ameribanc Investors Group v. Zwart, 706 F. 
     Supp. 1248 (E.D.Va. 1989) (holding that neither the Bank 
     Holding Act nor the Change in Control Act, 12 U.S.C. 
     Sec. 1730(q)(1) create a private right of action for damages 
     caused by

[[Page E2459]]

     failure to comply with regulatory requirements).
       In any event, quite apart from the weight of authority 
     holding that no private right of action for breach of 
     contract exists, as noted above, the FDIC can point to no 
     evidence showing that either UFG or Hurwitz signed a net 
     worth maintenance agreement.
     IV. OTS Administrative Proceedings pursuant to 12 USC 
         Sec. 1818(b)(1)
       Although the FDIC cannot prevail on a direct claim against 
     UFG for violation of the NWM stipulation, the OTS has the 
     statutory authority to pursue a NWM claim against UFG in an 
     administrative proceeding, pursuant to 12 USC Sec. 1818(b)1. 
     See, Akin V. OTS, 950 F.2d 1180 (5th Cir. 1992) holding that 
     NWM agreement is enforceable in cease and desist proceedings, 
     and that attack on the validity of the agreement for lack of 
     consideration must fail in light of Groos National Bank v. 
     Comptroller of the Currency, 573 F.2d 889 (5th Cir. 1978)). 
     In Groos, the court rejected an argument that a supervisory 
     agreement was invalid because of a lack of consideration: 
     ``The statute provides that a cease and desist order may 
     issue upon any violation of an agreement between the agency 
     bank and says nothing of consideration. Nor is there any 
     reason to import the common law of consideration, proper to 
     private contractual relations, into the relationships between 
     a regulatory agency and the entity it regulates. The 
     Comptroller is authorized by statute to exercise extensive 
     controls upon banks; the statute clearly contemplates that 
     agreements may occur between the Comptroller * * * and if the 
     Comptroller does enter such an agreement by way of attaining 
     voluntary compliance, we will not introduce the trappings of 
     common-law consideration to question that agreement. 573 F.2d 
     at 896.''
       In Akin, the court noted that under 12 U.S.C. Sec. 1818(b), 
     the OTS director has expansive authority to issue cease and 
     desist orders to correct violations of regulations or written 
     agreements between the agency and an institution affiliated 
     party, including the power to seek reimbursement and 
     restitution when a party has been unjustly enriched through 
     the violation. The court noted that by failing to make 
     capital infusions sufficient to cure the net worth 
     deficiency, Akin was able to retain capital which otherwise 
     would have been contributed to the financial institution. In 
     affirming the director's order requiring Akin to pay over $19 
     million to restore the net worth deficiency of the 
     institution, the court stated: ``Read in its entirety, the 
     statute manifests a purpose of granting broad authority to 
     financial institution regulators. The statute suggest that 
     unjust enrichment has a broader connotation than in 
     traditional contract law. Akin voluntarily entered the 
     Agreement with the FSLIC so that he could retain control over 
     [the financial institution]. He gained the significant 
     personal benefit of retaining and disposing of funds or 
     property which he was otherwise obligated to contribute to 
     [the institution] in compliance with his agreement to be 
     personally liable for net worth deficiencies. Akin has failed 
     to show that the director's conclusion that he was unjustly 
     enriched is arbitrary and capricious. 950 F.2d at 1183.''
       The court, in dicta, appears to reject an argument that 
     Sec. 1818 enforcement proceedings may only be initiated pre-
     receivership: ``This interpretation belies congressional 
     intent expressed to adopt broader cease and desist powers 
     with the passage of the FIRREA. The FIRREA included an 
     amendment to * * . (3), providing that the regulatory 
     agency's jurisdiction to institute cease and desist 
     proceedings continued beyond a party's separation from the 
     regulated institution, as long as that party was served with 
     notice within six years of separation from the institution. 
     The amendments also encompassed separation from the 
     institution. The amendments also encompassed separation 
     effected through a closing, such as is the case here, of an 
     institution. 950 F.2d at 1184.''
       Finally, the Akin court rejected the argument that post-
     closing exercise of cease and desist powers would unlawful 
     usurp receivership authority. The court noted that in the 
     absence of clear congressional intent to impose an automatic 
     stay of cease and desist proceedings upon receivership, the 
     court need only look to ``whether the agency's [action] is 
     based on a permissible construction of the statute.'' Chevron 
     U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 
     U.S. 837, 842-43, 104 S. Ct. 2778, 2781-82, 81 L. Ed. 2d 694 
     (1984).

          A. Involuntary Bankruptcy Petition Filed Against UFG

       On November 25, 1992, UFG's preferred shareholders filed an 
     involuntary bankruptcy petition against UFG seeking a 
     reorganization under Chapter 11 of the Bankruptcy Code. If 
     the bankruptcy petition is eventually heard on the merits and 
     the court grants the petition in bankruptcy, the OTS may 
     proceed on the NWM claim, if it deems it appropriate, by 
     filing a motion in the bankruptcy court to require the 
     trustee or debtor-in-possession to make good on UFG's 
     commitment to maintain the regulatory capital of USAT. 
     Section 365(o) of the Bankruptcy Code provides: ``In a case 
     under Chapter 11 of this title, the trustee . . . shall 
     immediately cure any deficit under any commitment by the 
     debtor to. . . the Director of the Office of Thrift 
     Supervision . . . or its predecessors . . . to maintain the 
     capital of an insured depository institution.''
       The purpose of Section 365(o) is ``to prevent institution--
     affiliated parties from using bankruptcy to evade commitments 
     to maintain capital reserve requirements of a federally 
     insured depository institution.'' In re First Corp., Inc., 
     973 F.2d 243, 246 (4th Cir. 1992). By operation of this 
     section, if the preferred shareholders are successful in 
     their effort to force UFG into Chapter 11, USFP or the 
     trustee would have to turn over assets to OTS in satisfaction 
     of the capital maintenance commitment. If UFG does not make 
     good on that commitment, Chapter 11 relief is not available. 
     See Id. at 247.
       If the adverse parties elect to proceed under Chapter 7, 
     the OTS, in any event, should be able to claim a priority 
     over general unsecured creditors as to ``allowed unsecured 
     claims based on any commitment by the debtors to maintain the 
     capital of an insured depository institution. 11 U.S.C. 
     Sec. 507(a)(8).''
     V. Net Worth Maintenance Claim Against MCO/FDC
       On December 6, 1984, pursuant to FHLBB Resolution 84-712, 
     MCO and FDC received FHLBB approval to acquire more than 25% 
     of UFG and thereby become a SLHC with respect to USAT. FHLBB 
     approval was conditioned upon MCO/FDC maintaining the net 
     worth of USAT. In late 1987, after extensive negotiations 
     with the FHLBB, MCO/FDC refused to accept these conditions 
     and no agreement was made. However, an argument could be made 
     that MCO/FDC functioned as a de facto SLHC with respect to 
     USAT from at least December 31, 1985, by virtue of the 
     following:
       (a) their 23% interest in UFG;
       (b) Drexel's acquisition, in December 1984, of 7.2% of 
     UFG's common stock--a date which coincides with FHLBB 
     Resolution 84-712;
       (c) a December 31, 1985 option agreement between MCO and 
     Drexel, whereby MCO had the right to acquire from Drexel, and 
     Drexel had the right to put to MCO, an additional 3% of UFG 
     common stock;
       (d) UFG's issuance to MCO/FDC, in 1985, of UFG preferred 
     stock which was convertible to UFG common;
       (e) common officers and directors among MCO, FDC and UFG, 
     and
       (f) the actual operating control of all three entities 
     exercised by Charles Hurwitz.

                                  ____
                                  

                               Record 3B

                                         Federal Deposit Insurance


                                                  Corporation,

                                 Washington, DC, December 3, 1993.
     Memo To: Chairman Hove.
     From: Alan J. Whitney, Director.
     Subject: Significant Media Inquiries and Related Activities, 
         Week of 11-29-93.

       Regulatory Consolidation: Several news organizations have 
     asked what the FDIC's position is on the agency consolidation 
     proposal unveiled last week by Treasury. They were told you 
     believed that with Board appointments imminent, it would be 
     inappropriate to take an agency position until the full board 
     is in place.
       Thrift conversions: Crain's New York Business, Philadelphia 
     Inquirer and American Banker newsletters inquired about the 
     thrift mutual-to-stock conversion policy that the FDIC is 
     currently developing, specifically when our position on this 
     subject will be published. The calls came after American 
     Banker ran an article in the Nov. 26 edition reporting on 
     Rep. Gonzalez' legislation to limit thrift management profits 
     from the conversions. We also received several inquiries 
     about our response to Cong. Neal's letter of November 22 to 
     you on the same subject, to which we have not yet responded.
       O'Melveny & Myers: On Monday, the Supreme Court agreed to 
     hear this case, involving the FDIC's ability to sue attorneys 
     who represented banks that failed. The decision to hear the 
     case prompted a flurry of press inquiries about similar cases 
     past and present. We provided some statistical data and 
     limited information about the Jones Day case, which is still 
     active.
       First City Bancorporation: Bloomberg Business News, Houston 
     Bureau, called regarding possible settlement in the First 
     City Bancorporation's claims case. It seems someone is 
     talking, because the reporter asked about a December 14 FDIC 
     Board meeting to discuss the settlement. The reporter wanted 
     to know: If the FDIC committee working on the agreement 
     approves the plan, does that mean the Board will ``rubber 
     stamp'' it? We advised the Board does not rubber stamp 
     anything. The Houston Chronicle also made several inquiries 
     about a possible settlement in this case, all of which we 
     answered with the standard response that we do not comment on 
     ongoing litigation.
       Los Angeles Times: Michael Parrish asked whether FDIC 
     lawyers have considered whether we could legally swap a 
     potential claim of $548 million against Charles Hurwitz 
     (stemming from the failure of United Savings Assn. of Texas) 
     for 44,000 acres of redwood forest owned by a Hurwitz-
     controlled company. We advised Parrish we're not aware of any 
     formal proposal of such a transaction. However, we noted that 
     a claim can be satisfied by relinquishing title to assets, 
     assuming there is agreement on their value. We didn't go any 
     further with Parrish, but Doug Jones notes that even if 
     Hurwitz satisfied our claim by giving us the redwoods, it 
     wouldn't result in what Earth First! (the folks who 
     demonstrated in front of the main building last month) 
     apparently is proposing, i.e., that we then deed the redwoods 
     property to the Interior Department. That would require some 
     extensive legal analysis and, since any claim we might assert 
     against Hurwitz would be a FRF matter, would likely entail 
     Treasury Department concurrence.


[[Page E2460]]


                                  ____
                                  

                               Record 3A

                                                November 30, 1993.
     To: Pat Bak
     From: J Smith
     Subject: Hurwitz
       Here are some materials that have been sent to me.
       (1) H.R. 2866--It may have a chance in Congress--talk to 
     Mike DeLoose (sp?) in legis affairs. Passage would put 
     millions more in Hurwitz's pocket.
       (2) Materials from Chuck Fulton re net worth maintenance 
     obligation. Evidently, PLS is supposed to pursue that claim. 
     Don't let it fall thru the crack! If it's not viable we need 
     to have a reliable analysis that will withstand substantial 
     scrutiny.


                               H.R. 2866

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Headwaters Forest Act''.

     SEC. 2. FINDINGS AND PURPOSE.

       (a) Findings.--The Congress finds that:
       (1) Redwoods are a significant national symbol and a 
     defining symbol of the State of California.
       (2) Old growth redwood trees are a unique and irreplaceable 
     natural resource.
       (3) Most of the Nation's old growth forests have been cut. 
     Less than 5 percent of the original 2,000,000 acre Coast 
     redwoods remain standing. The groves that are left are 
     crucial to maintain habitat needed for survival of old-growth 
     dependent species. The Headwaters Forest, for example, is 
     home to one of California's three largest population of 
     marbled murrelets, rare sea birds that nest only in coastal 
     old growth trees; the Northern Spotted Owl; and native salmon 
     stocks that spawn in the Forest's creeks.
       (4) The remaining unprotected stands of old growth forests 
     and old growth redwoods are under immediate threat of being 
     harvested without regard to their ecological importance and 
     without following Federal timber harvest guidelines.
       (5) Significant amounts of old growth redwoods in the 
     proposed National Forest additions are being cut at a pace 
     that is based on paying high interest rates on poor quality 
     bonds and not at a pace that is based on sound forest 
     management practices.
       (b) Purpose.--The purpose of this Act is to provide for the 
     sound management and protection of old growth Redwood forest 
     areas in Humboldt County, California, and to preserve and 
     enhance habitat for the marbled murrelet, Northern Spotted 
     owl, native salmon stocks, and other old growth forest 
     dependent species, by adding certain lands and water to the 
     Six Rivers National Forest and by including a portion of such 
     lands in the national wilderness preservation system.

     SEC. 3. ADDITION TO SIX RIVERS NATIONAL FOREST.

       (a) Extension of Boundaries.--The exterior boundaries of 
     the Six Rivers National Forest in the State of California are 
     hereby extended to include the area comprising approximately 
     44,000 acres, as generally depicted on the map entitled ``Six 
     Rivers National Forest Addition proposed'', dated June 1993. 
     Such area shall hereinafter in this Act be referred to as the 
     Six Rivers National Forest Addition. The map shall be on file 
     and available for public inspection in the offices of the 
     Forest Supervisor, Six Rivers National Forest, and in the 
     offices of the Chief of the Forest Service, Department of 
     Agriculture.
       (b) Acquisition of Land.--(1) The Secretary shall acquire 
     lands or interests in land within the exterior boundaries of 
     the Six Rivers National Forest Addition by donation, by 
     purchase with donated or appropriated funds, or by exchange 
     for other lands owned by any department, agency, on 
     instrumentality of the United States. When any tract of land 
     is only partly within such boundaries, the Secretary may 
     acquire all or any portion of the land outside of such 
     boundaries in order to minimize the payment of severance 
     costs. Land so acquired outside of the boundaries may be 
     exchanged by the Secretary for non-Federal lands within the 
     boundaries, and any land so acquired and not utilized for 
     exchange shall be reported to the General Services 
     Administration for disposal under the Federal Property and 
     Administrative Services Act of 1949 (63 Stat. 377). Lands, 
     and interests in lands, within the boundaries of the 
     Headwaters Forest which are owned by the State of California 
     or any political subdivision thereof, may be acquired only by 
     donation or exchange.
       (2) The Secretary is authorized to accept from the State of 
     California funds to cover the cost for acquiring lands within 
     the Headwaters Forest, and notwithstanding any other 
     provision of law, the Secretary may retain and expend such 
     funds for purposes of such acquisition. Such funds shall be 
     available for such purposes without further appropriation and 
     without fiscal year limitation.
       (c) Land Acquisition Plan.--The Secretary shall develop and 
     implement, within 6 months after the enactment of this Act, a 
     land acquisition plan which contains specific provisions 
     addressing how and when lands will be acquired under section 
     (b). The plan shall give priority first to the acquisition of 
     lands within the boundaries of the Headwaters Forest 
     Wilderness identified on the map referred to in section 3(a). 
     The Secretary shall submit copies of such plan to the 
     Committee on Natural Resources, the Committee on Agriculture, 
     and the Committee on Appropriations of the United States 
     House of Representatives and to the Committee on Energy and 
     Commerce, the Committee on Agriculture, Nutrition, and 
     Forestry and the Committee on Appropriations of the United 
     States Senate.
       (d) Authorization of Appropriations.--There are hereby 
     authorized to be appropriated such sums as may be necessary 
     to carry out the purposes of this Act.

     SEC. 4. WILDERNESS AREAS.

       (a) Designation.--In furtherance of the purposes of the 
     Wilderness Act (16 U.S.C. 1131-1136), lands in the State of 
     California acquired under section 3 of this Act which are 
     within the areas generally depicted on the map referred to in 
     section 3 as the ``Headwaters Forest Wilderness (Proposed)'' 
     shall be designated as wilderness and therefore as a 
     component of the National Wilderness Preservation System, 
     effective upon acquisition under section 3. Such lands shall 
     be known as the Headwaters Forest Wilderness.
       (b) Map and Description.--As soon as practicable after the 
     inclusion of any lands in the Headwaters Forest Wilderness, 
     the Secretary shall file a map and a boundary description of 
     the area so included with the Committee on Natural Resources 
     of the House of Representatives and with the Committee on 
     Energy and Natural Resources of the United States Senate. The 
     Secretary may correct clerical and typographical errors in 
     such boundary description and such map. Each such map and 
     boundary description shall be on file and available for 
     public inspection in the Office of the Chief of the Forest 
     Service, United States Department of Agriculture.
       (c) Buffer Zones Not Intended.--The Congress does not 
     intend that designation of any area as wilderness under this 
     section lead to the creation of protective perimeters or 
     buffer zones around the wilderness area. The fact that 
     nonwilderness activities or uses can be seen or heard from 
     areas within a wilderness shall not, of itself, preclude such 
     activities or uses up to the boundary of the wilderness area.
       (d) State Authority Over Fish and Wildlife.--As provided in 
     section 4(d)(8) of the Wilderness Act, nothing in this Act 
     shall be construed as affecting the jurisdiction or 
     responsibilities of the State of California with respect to 
     wildlife and fish in any areas designated by this Act as 
     wilderness.

     SEC. 5. ADMINISTRATION.

       (a) Management Plan.--The Secretary shall develop, within 1 
     year after the enactment of this Act, a comprehensive 
     management plan detailing measures for the preservation of 
     the existing old growth redwood ecosystems in the Six Rivers 
     National Forest Addition, including but not limited to each 
     of the following:
       (1) Prohibition of sale of timber from lands within the old 
     growth redwood groves as depicted generally on the map 
     referred to in section 3(a). Timber sales in other areas 
     shall be allowed consistent with the purposes of this Act and 
     other applicable Federal laws and regulations.


       (2) Measures to restore lands affected by previous timber 
     harvests to mitigate watershed degraduation and impairment of 
     habitat for the marbled murrelet, spotted owl, native salmon 
     stocks, and other old-growth forest dependent species 
     (``Restoration Measures'').

     The Management Plan shall be reviewed and revised every time 
     the Six Rivers National Forest Land and Resource Management 
     plan is revised or more frequently as necessary to meet the 
     purposes of this Act.
       (b) Applicable Laws and Policies.--(1) The Secretary, 
     acting through the Chief of the Forest Service, shall 
     administer the lands acquired under section 3(b) in 
     accordance with the Management Plan, this Act, and with the 
     other laws, rules, and regulations applicable to such 
     national forest. In addition, subject to valid existing 
     rights, any lands acquired and designated as wilderness under 
     section 4(a) shall also be administered in accordance with 
     the provisions of the Wilderness Act governing areas 
     designated by that Act as wilderness, except that any 
     reference in such provisions to the effective date of the 
     Wilderness Act (or any similar reference) shall be deemed to 
     be a reference to the date of acquisition of such lands under 
     section 3 of this Act.
       (2) To the maximum extent practicable, all work to 
     implement the management plan's Restoration Measures shall be 
     performed by unemployed forest and timber workers, unemployed 
     commercial fishermen, or other unemployed persons whose 
     livelihood depends on fishery and timber resources.
       (3) In order to facilitate management, the Secretary, 
     acting through the Chief of the Forest Service may enter into 
     agreements with the State of California for the management of 
     lands owned by the State or purchased with State assistance.

     SEC. 6. PAYMENTS TO LOCAL GOVERNMENT.

       (a) PILT.--Solely for purposes of payments made pursuant to 
     chapter 69 of title 31 of the United States Code, all lands 
     added to the Six Rivers National Forest by this Act shall be 
     deemed to have been acquired for the purposes specified in 
     section 6904(a) of such title 31.
       (b) 10-Year Payment.--(1) Subject to annual appropriations 
     and the provisions of subsection (c), for a period of 10 
     years after acquisition by the United States of lands added 
     to the Six Rivers National Forest by this Act, the Secretary, 
     with respect to such acquired lands, shall make annual 
     payments

[[Page E2461]]

     to Humbolt County in the State of California in an amount 
     equal to the State of California Timber Yield Tax revenues 
     payable under the California Revenue and Taxation Code (sec. 
     38101 et seq.) in effect as of the date of enactment of this 
     Act that would have been paid with respect to such lands if 
     the lands had not been acquired by the United States, as 
     determined by the Secretary pursuant to this subsection.
       (2) The Secretary shall determine the amounts to be paid 
     pursuant to paragraph (1) of this subsection based on an 
     assessment of a variety of factors including, but not limited 
     to--
       (A) timber actually sold in the subject year from 
     comparable commercial forest lands of similar soil type, 
     slope and such determination of appropriate timber harvest 
     levels,
       (B) By comparable timber size class, age, and quality.
       (C) market conditions,
       (D) all applicable Federal, State, and local news and 
     regulations, and
       (E) the goal of sustainable, even-flow harvest or renewable 
     timber resources.
       (c) California Timber Yield Tax.--The amount of State of 
     California Timber Yield Tax payments paid to Humboldt County 
     in any year pursuant to the laws of California for timber 
     sold from lands acquired under this Act shall be deducted 
     from the sums to be paid to Humboldt County in that year 
     under subsection (b).
       (d) 25-Percent Fund.--Amounts paid under subsection (b) 
     with respect to any year shall be reduced by any amounts paid 
     under the Act of May 23, 1908 (16 U.S.C. 500) which are 
     attributable to sales from the same lands in that year.

     SEC. 7. FOREST STUDY.

       The Secretary shall study the lands within the area 
     comprising approximately 13,620 acres and generally depicted 
     as ``Study Area'' on the map referred to in section 3(a). The 
     study shall analyze the area's potential to be added to the 
     Headwaters Forest and shall identify the natural resources of 
     the area including the location of old growth forests, old 
     growth redwood stands, threatened and endangered species 
     habitat and populations including the northern spotted owl 
     marbled murrelet, commercial timber volume, recreational 
     opportunities, wildlife and fish, watershed management, and 
     the cost of acquiring the land. Within one year of the date 
     of enactment of this Act, the Secretary shall submit a report 
     with the findings of the study to the Committees on Natural 
     Resources, and Agriculture of the United States House of 
     Representatives and the Committees on Energy and Natural 
     Resources, and Agriculture, Nutrition, and Forestry of the 
     United States Senate.

                                  ____
                                  

                                Record 6


                                         Federal Deposit Insurance


                                                  Corporation,

                                 Washington, DC, February 4, 1994.
     Carolyn B. Lieberman, 
     Acting General Counsel,
     Office of Thrift Supervision, Washington, DC.
     Re: United Savings Association of Texas
       Dear Ms. Lieberman: On September 2, 1992 I briefed Tim 
     Ryan, Harris Weinstein and I believe Dwight Smith regarding 
     possible claims stemming from the failure of United Savings 
     Association of Texas (USAT). In conjunction with our 
     investigation of professional liability claims arising out of 
     that failure, our staff has reviewed potential claims against 
     United Financial Group, Inc. (``UFG''), USAT's first tier 
     holding company, for failure to maintain USAT's net worth. 
     Our staff also reviewed the possible liability of MCO 
     Holdings and its successor, Maxxam, Inc. and Federated 
     Development Corp., for failure to maintain USAT's net worth. 
     I am enclosing a copy of this memorandum for your independent 
     review and consideration.
       In summary, the staff has concluded that the FDIC has no 
     viable claim against UFG based on an implied private or 
     federal common law cause of action for failure to maintain 
     USAT's net worth. However, the OTS may be able to pursue a 
     NWM claim against UFG and perhaps others for failure to 
     maintain USAT's net worth. It appears likely that any such 
     administrative proceeding must be commenced on or before 
     December 30, 1994, within six years of USAT's failure. See 12 
     U.S.C. Sec. 1818(i)(3).
       I would appreciate it if you would review this analysis and 
     provide me with your view and any proposals for further 
     action. You should be aware that this case has attracted 
     public attention because of the involvement of Charles 
     Hurwitz, and environmental groups have suggested that 
     possible claims against Mr. Hurwitz should be traded for 
     44,000 acres of North West timber land owned by Pacific 
     Lumber, a subsidiary of Maxxam. Chairman Gonzales has 
     inquired about the matter and we have advised him we would 
     make a decision by this May. After you have reviewed these 
     papers, please call me or Pat Bak (736-0664) to discuss the 
     next step and to arrange coordination with our professional 
     liability claims.
           Sincerely,
                                                    Jack D. Smith,
                                           Deputy General Counsel.

                                  ____
                                  

                                Record 8

                    Rose Foundation--Conference Call

                                10/4/94

       Tom Hecht * * * Hopkins & Sattler.
       Jeff Williams & FTD, * * *

                              2--3:15 p.m.

       Tom Lipp--Esq.
       Kirk Byrd--Esq.,--and Dave Williams, Esq.
       Jull Radner, Esq.--President--Rose Foundation.
       Rick DeStefano, Esq.,--New Mexico--Real Estate & Litigator.
       Who is doing what on the investigation? Who makes the 
     decision and how are they made?
       Tom Lippe--statutory mandates.
       Constructive trust--``there is a lot to be explored there--
     perhaps it could work.''
       Currently three lawsuits pending that are protecting the 
     oldest growth. Areas recently logged are adjacent to the 
     oldest trees. Currently 18 timber harvest plans that include 
     very old growth trees.
       EPIC filed & agreed (10/3) a TKO to stop the cutting.
       5,000-6,000 acres of virgin old growth left--all in 
     litigation. Some cases are winding down and may be coming 
     back to St. of CA to cause legal defects and allow logging to 
     continue. In this case--logging may be permitted to continue 
     in the next few months. EPIC and Rose are running out of 
     resources to continue to fight the logging.
       Habitat conservation plan may take 12 months to get Dept. 
     of Interior/Fish and Wildlife Service to residual growth 
     still very much at risk.
       Kathy Lacy--Asst. to Feinstein--can tell us more about 
     Headwater legislation.
       We will not discuss theories and hypothical strategies with 
     them.
       Any published criteria for the FDIC's Board's deliberation 
     and ultimate decision on how to proceed? No other * * * 
     recommendations of FDIC staff.

                                  ____
                                  

                               Memorandum

     To: File.
     From: Steve Lambert.
     Re: Points for July 21, 1994 Conference.

                             I. Background

       A. History of old growth redwood preservation--RNP I; RNP 
     II; State Park System; historical role of Pacific Lumber 
     Company (PL) and change in 1986; expert witness ``players''--
     WTS, HJW, Fleming, NRM (Miles; Rynearson). Primary valuation 
     issues.
       B. Current legislation not the first to deal with Hurwitz 
     or with Headwaters/PL (severance tax proposal; elimination of 
     section 631(a) benefits; refinancing).

                              II. HR 2866

       A. Summary of substance: Adds 44,000 acres of timberland to 
     the Six Rivers National Forest in Northern California (3,000 
     acres of virgin old growth, immediately adjacent 1,500 acres 
     to protect the 3,000 acres, plus the rest for wildlife 
     protection.)
       In original bill, acquisition by donation, purchase or 
     exchange. In House Natural Resources Committee--but not by 
     condemnation. Authorizes appropriations to effect acquisition 
     and allows acceptance of money from the State of California.
       Requires FS to prepare a management plan for the acquired 
     area, which would at least prohibit timber sales from the 
     3,000 acres and contain measures to restore the lands 
     previously logged. Headwaters would become a Wilderness Area.
       B. Status of Bill: 132 Cosponsors in House (124 Dem.; 8 
     Republican).
       Of the Co-sponsors, 34 are on one of the Committees dealing 
     with FDIC. 13 of 26 Democrats, including Chrm. Conyers on 
     Gov. Ops. are Co-sponsors (plus 2 Rep. and 1 independent); 16 
     out of 30 Democrats on Banking, plus one Independent, are Co-
     sponsors.
       8 out of 27 Democrats on Energy and Commerce are Co-
     sponsors. (Number don't add to total, since some are on two 
     Committees.)
       Referred to two committees (House Agriculture and House 
     Natural Resources) in August, 1993. Hearings held in both 
     Natural Resources Committee (October 12, 1993) and in House 
     Agriculture Committee (October 13, 1993).
       Reported out of House Natural Resources on May 11, 1994 
     (amended to add language relating to swap of Headwaters for 
     surplus federal property.)
       Bill marked up by House Agriculture Committee late July 13, 
     1994. Amended for technical corrections, to add language 
     relating to swap of Headwaters for surplus federal property, 
     to add sunset of acquisition authority--10 years, to clarify 
     that until timberland is acquired the owner may have full 
     ``enjoyment'' of the rights of owning the property.)
       Ready for action by Rules Committee so that the two 
     versions can be brought to the floor of the House. According 
     to our information, Speaker Foley has a desire not to have 
     this bill considered this year, and has ``placed a hold on 
     the bill''. Kaiser Aluminum, which is a subsidiary of MAXXAM, 
     INC. (87\1/2\%), is the largest employer in Speaker Foley's 
     district. Speaker Foley is getting pressure from both sides 
     (the conservationist organizations on the one side; local 
     constituents on the other). Speaker Foley has long enjoyed 
     the support of the conservationist community and has a 
     ``tougher than normal'' race this fall. However, he currently 
     is on the ``outs'' with the national leadership of some 
     conservationist organizations because he recently refused to 
     all a conservationist-supported amendment on the Foreign 
     Operations spending bill for FY 1995. Our information is that 
     until Speaker Foley acts, no ``rule'' will be forthcoming 
     from the Rules Committee.
       No companion bill in the Senate. Some indication that 
     California Senators not supportive.

[[Page E2462]]

                              III. S. 2285

       A. This bill was introduced on July 14, 1994 by Senator 
     Boxer of California. It is similar, but not identical to the 
     original H.R. 2866.
       B. The bill was referred to three Committees (Energy, 
     Environment, and Agriculture). No hearings have yet been 
     scheduled.

                            IV. Major Issues

       A. Money. FS appraisal (by Jim Fleming, based on HJW 
     volumes) of the 4,500 acres is $500 million. Valuation data 
     presented by Natural Resource Management Corporation (in 
     response to inquiry from Congressman Hansen) would peg it 
     over $600 million for same 4,500 acres. Funding through 
     normal source (Land and Water Conservation Fund) seemingly 
     not ``doable''. Ideas surfaced recently--pay some cash, get 
     some from State of California, use some of the value to pay 
     off ``debt'' to FDIC, pay in part with ``chits'' for excess 
     government assets (like military bases, timber), pay in part 
     by exchanges for other timberland.
       B. Valuation Issues--many. Include market change (old 
     growth redwood prices soaring--up at least 15% since Fleming 
     appraisal); lack of true comparable sales (no old growth 
     redwood sold ``on the stump''; effect of regulations (Cal. 
     Bd. of Forestry; Endangered Species Act--marbled murrelets) 
     on amount of ``loggable timber''. Normal issues relating to 
     volume, quality. Right now seemingly no ``discount'' issue, 
     since FS appraisal included no ``discount for size/volume''.
       C. No Condemnation Authority--Bill requires a ``willing 
     seller'', and PL not interested in selling more than 4,500 
     acres, although one account puts the acreage at 7,000 acres. 
     PL would not allow Fleming on more than 4,500 acres. 
     Seemingly interested in exploring sale at fair market value 
     of the 4,500 acres for cash and other creative compensation.
       D. FDIC--PL public position--there is no tie between 
     Hurwitz/FDIC matter and PL Headwaters. The idea of a ``debt-
     for-nature'' swap is ``ludicrous'', according to PL. David 
     Barr of the FDIC quoted as down-playing the viability of the 
     plan--``How do we turn those trees into money to distribute 
     to all those creditors.'' H&S role talked about in May 15, 
     1994 article in the Houston Chronicle.
       E. Politics--Hamburg in a ``Marginal seat''. Switches back 
     and forth from Democrat to Republican. Recent Democratic 
     primary pitted Hamburg against Bosco (former Democratic 
     congressman from same district on a $15,000/month legal 
     retainer from PL). Hamburg won, but faces stiff Republican 
     opposition in November from another former holder of this 
     seat. Major issue will be ``jobs vs. murrelets''. Seemingly 
     lack of support on Senate side to do anything now. Last year 
     a state ``environmental bond referendum'' defeated. New one 
     to be on ballot in near future. Questionable support from 
     Administration (officially against the current legislation 
     because of money, but in favor of the goal of preserving the 
     trees and willing to work to see what can be done.)
       Normal conservationist interest group support for the 
     legislation, except that Save the Redwoods League seems to be 
     opposed. Local government/politician opposition because of 
     effect on jobs/tax base.

                             IV. Questions

       A. Source of stated Congressional expectations regarding 
     any lawsuit involving Hurwitz and USAT and/or United 
     Financial Group.
       B. Ownership issues--According to Moody's, end of 1992 
     MAXXAM ownership shows Hurwitz with 59.9% voting control, 
     with 31.4% of common stock owned by him personally. The 
     Pacific Lumber Company (owner of Headwaters) shown as a 
     wholly-owned subsidiary. Hurwitz the Chairman, President and 
     CEO of MAXXAM, Inc. Directors include: Hurwitz, S.D. 
     Rosenberg, E.G. Levin, and R.J. Crinkshank.
       C. Summary of history makes no mention of PL acquisition. 
     Does mention acquisition of 1,104,098 shares of common stock 
     of United Financial Group, Inc. during 1982 and 1983.

                                  ____
                                  

                               Memorandum

     To: Jill Ratner, The Rose Foundation.
     From: Richard De Stefano.
     Date: October 1, 1994.
     Re: FDIC Claims Against MAXXAM And Hurwitz: Federal cases 
         applying breach of fiduciary duty and constructie trust 
         principles.


                           question presented

       Assuming MAXXAM and Hurwitz are subject to liability under 
     California or Texas law for breach of fiduciary duty to 
     USAT's creditors, and assuming state law authorizes the 
     remedy of constructive trust, do federal court decisions 
     support the imposition by a federal court of a constructive 
     trust over PL for the benefit of FDIC?


                               conclusion

       There is overwhelming authority for imposition of 
     constructive trust by federal court, with dozens of new 
     decisions every few years in complete harmony with the state 
     court cases discussed in earlier memoranda. In fact, while 
     states court constructive trust cases tend to arise in 
     traditional state law domains, such as family law, decedents' 
     estate and real property title disputes, the federal cases 
     cover the spectrum of complicated commercial matters and are 
     factually closer to the subject claims. A federal court will 
     not hesitate to reach MAXXAM and Hurwitz, if their liability 
     is established under state law; will not hesitate to unwind a 
     complex series of transactions such as the quid pro quo 
     described in the statement of facts; and will not hesitate to 
     reach PL and its assets as the fruit of MAXXAM's and 
     Hurwitz's wrongful conduct.


                               discussion

       1. Whether applying state law or construing federal 
     statutes and regulations, the Federal Court do not hesitate 
     to impose constructive trust as remedies for breach of 
     fiduciary duty, fraud, or unjust enrichment. For example, the 
     Ninth Circuit applied California law in the diversity case 
     Lund v. Albrecht, 936 F.2d 419 (9th Cir. 1991), to impose a 
     constructive trust on the excess proceeds of sale of a 
     partnership asset. The partners had agreed to dissolve their 
     partnership, and had agreed on values and disposition of all 
     assets. While the unwinding of the partnership was pending, 
     one partner received an offer on an asset which was 
     substantially higher than the agreed amount, and which he did 
     not disclose to the plaintiff, but kept the secret profit for 
     himself. The Lund Court clearly held that even a former 
     partner has fiduciary obligations, and held that a 
     constructive trust is the appropriate remedy for breach of 
     those obligations, rejecting the defendant's argument that 
     damages were adequate. See also U.S. v. Pegg, 782 F.2d 1986, 
     upholding a constructive trust remedy for wrongful 
     acquisition or detention of property belonging to another.
       The Fifth Circuit is also willing to impose constructive 
     trust in appropriate cases. The Court applied Texas law in 
     Matter of Carolin Paxson Advertising, Inc., 938 F.2d 595 (5th 
     Cir. 1991), and Matter of Monnig's Dept. Stores, Inc., 929 
     F.2d 197 (5th Cir. 1991). The Fifth Circuit has also clearly 
     embraced fiduciary liability principles as applied to a 
     parent corporation liability for obligations of subsidiary. 
     In Gibraltar Savings v. L.D. Brinkman Corp., defendant 
     holding company was held liable for the loan made to its now-
     insolvent subsidiary, despite the fact that defendant was not 
     a guarantor, there were other guarantors who settled with the 
     bank, and the subsidy was not insolvent at the time of the 
     loan. Liability was based on defendant's actual control of 
     the proceeds of the loan to the subsidiary which interfered 
     with the sub's ability to repay. It is also clear from the 
     opinion that the Fifth Circuit would have affirmed liability 
     of the individual defendant Lloyd D. Brinkman if he had been 
     held liable below, but the issue of individual shareholder 
     liability was not before the Court.
       Applying Illinois law, the Seventh Circuit upheld a 
     constructive trust established by a state court. In Re 
     Teltroncis, 649 F.2d 1236 (7th Cir. 1981), was a federal 
     action by Debtor's bankruptcy trustee against the state court 
     receiver. The Debtor's principal had fraudulently advertised 
     watches for sale, collecting about $1.7 million in prepaid 
     orders with no intent to deliver the goods, then absconding 
     with about $1.3 million to parts unknown. There was about 
     $800,000 in the Debtor's account which the Receiver seized 
     per the state court order for the benefit of the defrauded 
     purchasers. The bankruptcy trustee sought in federal court to 
     make those funds part of the estate for all creditors. Held, 
     the funds were not part of the estate but were in a 
     constructive trust for the purchasers.
       On the specific question of wrongfully obtained corporate 
     stock as the res of a constructive, see Matter of First 
     Georgia Financial Corp., 120 B.R. 239 (Bkrtcy M.D.GA. 1980). 
     There the Court endorsed the principle of the constructive 
     trust remedy but refused to apply it to the Debtor on the 
     facts. Claimant was the mother of the Debtor's sole 
     principal, who had advanced funds to Debtor which used them 
     to acquire stock. Held, Debtor's taking funds from the 
     claimant was not fraudulent but was a loan from mother. 
     (Here the Court applied Georgia law on the fraud question, 
     but in Bankruptcy cases the remedy of constructive trust 
     is specifically authorized by statute. 11 U.S.C.A. 
     Sec. 550.) See also, Voest-Alpine Trading USA Corp. v. 
     Vantage Steel Corp., 919 F. 2d 206 (3d Cir. 1990), 
     discussed below, which imposed a constructive trust over 
     corporate stock.
       It is clear that federal courts do not require a showing of 
     fraud to justify imposition of a constructive trust, but 
     unjust enrichment is sufficient. Bush v. Taylor, 893 F.2d 962 
     (8th Cir. 1990); U.S. v. Pegg, 782 F.2d 1498 (9th Cir. 1986).
       Individuals controlling corporations are frequently held 
     liable to the corporation's creditors in federal courts. Both 
     American Metal Forming Corp. v. Pittman, 135 B.R. 782 (D. Md. 
     1992) and In Re American Motor Club, Inc. (Bkrtcy E.D.N.Y. 
     1990) involved constructive trusts over property wrongly 
     acquired for the individual account of controlling persons of 
     corporations, in breach of the fiduciary duties of the 
     individuals to acquire the assets of corporations' accounts, 
     the ``corporate opportunity'' doctrine.
       Similarly, a constructive trust will be the remedy where an 
     employee acquires property with funds embezzled from his 
     employer. MDO Development Corp. v. Kelly, 726 F. Supp. 79 
     (S.D.N.Y. 1989).
       2. Federal Courts will treat multiple, related transactions 
     as a single transaction, will pierce corporate veils, and 
     will regard the substance of transactions over their form, 
     where equity so requires, in order to impose breach of 
     fiduciary liability and the remedy of constructive trust on 
     controlling persons who wrongfully benefit from complex, 
     inequitable transactions.
       In Voest-Alpine Trading USA Corp. v. Vantage Steel Corp., 
     919 F. 2d 206 (3d Cir. 1990), the

[[Page E2463]]

     individual defendants were principal shareholders of an 
     insolvent corporation (``XYZ'') of which plaintiff was an 
     unsecured creditor. These controlling shareholders induced a 
     secured creditor to foreclose on substantially all XYZ's 
     assets. Through several complex financings involving the same 
     foreclosing creditor, the individuals formed a new 
     corporation, defendant Vantage Steel, which purchased the 
     assets, and opened for business, in the same business as XYZ, 
     and with the individuals in sustantially the same roles. The 
     main issue was the applicability of Pennsylvania's Fraudulent 
     Conveyance statute (Pennsylvania Uniform Fraudulent 
     Conveyance Act, 39 Pa. Stat. Sec. Sec. 354-357), which 
     generally prohibits transfers of assets or liens on assets 
     either (1) with intent to defraud, or (2) for less than fair 
     consideration and which renders the transferor insolvent. 
     Defendant argued that the statute did not apply to a series 
     of transactions where each step was lawful. The Court held 
     that a group of transactions will be analyzed as a single 
     transaction where equity so requires, and upheld a 
     constructive trust on the individual defendants' interest in 
     the new corporation, for the benefit of unsecured creditors 
     of XYZ.
       On the issue of ``collapsing'' multiple transactions for 
     fraudulent conveyance analysis, the Voest-Alpine Court relied 
     on the landmark Third Circuit decision in U.S. v. Tabor Court 
     Realty Corp., 803 F.2d 1288 (3d Cir. 1986). There the Court 
     unwound a hideously complicated series of transactions 
     comprising a major leveraged buy out (``LBO'') of 
     a financially distressed group of related coal mining 
     companies (``RAYMOND'') by its president, DURKIN, who 
     formed a new buying company (``GREAT AMERICA''). The 
     Court's recitation of facts runs for many pages, employing 
     charts to track the relationships and the dollars 
     involved; for this memo, the facts can be greatly 
     condensed; RAYMOND was privately owned by wealthy 
     individuals who employed DURKIN as a professional manager; 
     the shareholders wanted out, and granted DURKIN an option 
     to purchase all their shares, which option DURKIN assigned 
     to GREAT AMERICA; RAYMOND pledged all its assets, 
     including coal mines and substantial other real property, 
     to SECURED LENDER for a loan of about $8.3 million; 
     RAYMOND used the loan proceeds in part to pay preferred 
     creditors, part as a reserve for interest payments, and 
     lent the balance of about $4 million unsecured to GREAT 
     AMERICA; GREAT AMERICA used the money (and additional 
     funds borrowed against the same assets) to buy all the 
     stock of RAYMOND, paying defendant shareholders about $6 
     million in cash (plus more debt); SECURED LENDER sold its 
     mortgages to PAGNOTTI, who sold them to McCLELLAN; 
     management could not turn the operations around, and so 
     defaulted; McCLELLAN foreclosed and sold the assets to a 
     group of related companies (``LOREE''--a separate company 
     was formed for each major property, to redeem state and 
     local property tax liens). When the financial dust 
     settled, the former shareholders of RAYMOND got a lot of 
     cash, LOREE got the mines, and the non-preferred creditors 
     of RAYMOND got the shaft.
       The largest such obligation of RAYMOND was to the IRS for 
     about $20 million. The U.S. sued everyone involved in each 
     transaction and everyone who received any of the loan 
     proceeds (including the State of Pennsylvania and two 
     Pennsylvania counties, for preferential payments of state 
     employment taxes and county real property taxes) in several 
     related actions which were consolidated for trial and appeal. 
     After a 120-day trial, the District Court unwound the entire 
     deal. (It is not clear from the opinion whether any 
     defendants escaped liability or whether liability was limited 
     to the amount of benefits received in any case.)
       The primary issue was the District Court's treatment of all 
     these transactions as a single fraudulent conveyance. In 
     affirming, the Tabor Realty Court faced for the first time, 
     and squarely rejected, the defense contention that LBO's were 
     too big, too complex, and too important to big-time corporate 
     finance, ever to be analyzed under fraudulent conveyance law. 
     Although a damages case not involving a constructive trust, 
     Tabor Realty is important because it extended traditional 
     equitable principles to very complicated, modern financial 
     transactions, and rejected the arrogant view that some 
     transactions are so big, complicated, and important that they 
     are beyond the reach of equity. The Court's reasoning applies 
     not only to LBO transactions, but to their financial cousins 
     engineered by Milken and Drexel.
       It appears beyond doubt that federal courts will apply 
     state law breach of fiduciary duty and unjust enrichment 
     principles, will cut through tiers of related entities and 
     multiple transactions to reach the real controlling persons 
     and others who benefit from wrongful conduct, and will impose 
     constructive trusts in appropriate cases.

                                  ____
                                  

                                               The Rose Foundation
                                                 October 12, 1994.
     Tom Hecht,
     Hopkins & Sutter, Counsel for the Federal Deposit Insurance 
       Corporation, Chicago, IL.
       Dear Tom, I wanted to thank you again for arranging the 
     October 4 teleconference with Bod DeHenzel and Jeff Williams. 
     I also wanted to thank all three of you for taking the time 
     to allow the Rose Foundation's legal team to present our 
     arguments supporting imposition of a constructive trust on 
     Pacific Lumber, and supporting a petition for injunctive 
     relief halting or severely limiting logging on Pacific Lumber 
     lands during the litigation of the FDIC's claims arising out 
     of the failure of United Savings Associatiation of.
       In response to your requests for more specific information 
     on current logging within the greater Headwaters area, or 
     Headwaters Forest Complex:
       Jama Chaplin, at the Environmental Public Interest Center 
     (EPIC), in Garberville, California, has agreed to prepare a 
     list of pending and recently resolved litigation affecting 
     Headwaters Forest, which she hopes to fax to your office this 
     week.
       Randy Ghent, also of EPIC, is preparing a map that 
     indicates areas affected by the pending and recently resolved 
     court cases, as well as areas that covered by active timber 
     harvest plans (THPs) or by THPs currently pending before the 
     California Department of Forestry (CDF).
       The THPs on file with CDF contain some information 
     concerning the character of the affected forest parcels, 
     including, in at least some cases, the estimated number of 
     old growth trees per acre within the parcels. Randy is 
     willing to secure copies of the THPs that he has in his 
     office. As a non lawyer (and someone generally opposed to 
     unnecessary use of wood products), he would, however, like to 
     know whether he should excerpt sections related to the 
     character of the parcels or send the complete THPs, which he 
     described as ``extremely voluminous'' to be copied. Please 
     let me know which you would prefer.
       /??????????copy missing
       of stock in the savings and loan holding company, United 
     Financial Group (UFG), which was the sole shareholder in the 
     savings and loan, United Savings Association of Texas (USAT) 
     (which percentage comes to well over 25% when the Drexel 
     stock is added to the MAXXAM/Federated stock), MAXXAM 
     nonetheless did not hold USAT stock directly. However, it 
     appears clear from our review of the general corporate case 
     law that so long as MAXXAM (or its predecessor, MCOH) 
     exercised de facto control over the savings and loan it will 
     be regarded as having the same duties and obligations as 
     would be imposed on a controlling shareholder of the savings 
     and loan itself.
       If there is law specific to the savings and loan context 
     that contradicts this general principle, we would be very 
     greatful if you could direct us toward it, if it is possible 
     for you to do so without compromising any confidentiality 
     concerns.
       Once again, thank you for your time and attention. Please 
     let me know if we can be of service on this matter in any 
     way. I will look forward to hearing from you.
           Sincerely,

                                                  Jill Ratner,

              Rose Foundation for Communities and the Environment.

                                  ____
                                  

                                              The Rose Foundation,
                                                 October 14, 1994.
     Bob DeHenzel,
     FDIC, Washignton, DC.
       Dear Bob, I am enclosing summaries of recent and pending 
     cases affecting the Headwaters Forest (as well as a couple of 
     older cases that seemed likely to be of interest). These are 
     abstracted from a draft document that Jama, a volunteer at 
     the Garberville Environmental Public Information Center 
     (EPIC) faxed to me on Wednesday.
       I hope this information is helpful.
       Randy Ghent, who is also a volunteer with EPIC, is working 
     on a map that will provide a sense of what specific areas are 
     directly affected by the cases summarized.
       Thanks again for your interest and attention.
           Sincerely,

                                                  Jill Ratner,

              Rose Foundation for Communities and the Environment.

                                  ____
                                  

                                                 October 14, 1994.
     Tom Hecht,
     Hopkins & Sutter, Counsel for the Federal Deposit Insurance 
       Corporation, Chicago, IL.
       Dear Tom, I am enclosing summaries of recent and pending 
     cases affecting the Headwaters Forest (as well as a couple of 
     older cases that seemed likely to be of interest). These are 
     abstracted from a draft document that Jama, a volunteer at 
     the Garberville Enviornmental Public Information Center 
     (EPIC) faxed on me on Wednesday.
       I hope this information is helpful.
       Randy Ghent, who is also a volunteer with EPIC, is working 
     on a map that will provide a sense of what specific areas are 
     directly affected by the cases summarized.
       Thanks again for your interest and attention.
           Sincerely,

                                                  Jill Ratner,

              Rose Foundation for Communities and the Environment.

                                  ____
                                  

                             Pending Cases


                   MARBLED MURRELET v. PACIFIC LUMBER

       This federal suit alleges that Pacific Lumber's (PL's) 
     logging in Owl Creek Grove constitutes a ``take'' in 
     violation of the federal and state Endangered Species Acts, 
     either by significantly disrupting the murrelet's normal 
     behavioral patterns or by actually injuring or killing 
     murrelets.
       Procedure: The suit was filed 4/16/93. It originally named 
     as additional defendants

[[Page E2464]]

     the United States Fish and Wildlife Service (USFWS), 
     Department of Fish and Game (DFG), Bureau of Forestry (BOF), 
     and California Department of Forestry (CDF). On 9/1/93 the 
     federal district court dismissed the Environmental Public 
     Information Center's (EPIC's) claims against all parties 
     except PL. Steve Volker of Sierra Club Legal Defense Fund 
     (SCLDF) is currently appealing this dismissal for EPIC.
       During discovery, PL was sanctioned by the Court and 
     ordered to pay EPIC $6,275 for withholding information.
       Trial was held August 15-24 and September 6-9, 1994 in San 
     Francisco before Visiting Judge Louis Bechtle. Witnesses 
     testified to PL's falsification of murrelet survey data and 
     to other material misrepresentations by PL.
       Status: awaiting ruling, anticipated in January of 1995, 
     may be sooner.
       EPIC Attorneys: Mark Harris, Macon Cowles, Susan O'Neill, 
     Charles Steven Crandall, Brian Gaffney, Steve Wolker
       EPIC Contacts: Cecelia Lanman, Charles Powell, Josh 
     Kaufman, Jamie Romeo, Laurie Sarachek


                     EPIC v. CDF (``Seven THP's'')

       EPIC challenged CDF's approval of seven Timber Harvest 
     Plans (THPs) in residual old-growth areas of PL's Headwaters 
     Forest area.
       Procedure: TRO denied October, 1994.
       Trial set for October 31.
       EPIC Attorney: Brian Gaffney.
       EPIC Contact: Cecelia Lanman.


                  EPIC v. CDF (``All Species Grove'')

       This involves a 186 acre THP in virgin old-growth redwood 
     and fir habitat in PL's Headwaters Forest area, at the 
     confluence of Bell and Lawrence Creeks. PL refused to conduct 
     site-specific wildlife surveys and refused to accept some DFG 
     mitigation.
       Procedure: THP 1-90-069HUM approved 5/4/90. EPIC filed 
     Petition 5/4/90, Humboldt Ct. #90CP0341. Judge Nelson issued 
     a Temporary Restraining Order 5/9/90. After trial 6/4/92, on 
     6/5/92 Nelson denied injunction and writ, holding in essence 
     that the California Environmental Quality Act (CEQA) applies 
     much more narrowly to THPs than the decision in EPIC's first 
     successfully litigated case, EPIC v. Johnson, allows. Sierra 
     Club v. CDF II (Hum. Ct. #90CPO405) was consolidated into 
     this suit. The appeal has been briefed, but no date set for 
     oral argument. For some time, Tom Lippe had believed that 
     Appeals Court was waiting for the Supreme Court to decide 
     Sierra Club v. BOF, which presented very similar issues. That 
     case was decided July 21, 1994.
       EPIC Attorney: Tom Lippe, R. Jay Moller, Kenneth Collins
       EPIC Contact: Charles Powell

                            RECENTLY DECIDED


                    SIERRA CLUB V. BOARD OF FORESTRY

       On July 21, 1994, the California Supreme Court unanimously 
     affirmed a Court of Appeal judgment, holding that the 
     California Board of Forestry (BOF) cannot approve a THP that 
     does not include information requested by the CDF regarding 
     the presence in the plan area of old-growth dependent 
     species. Significantly, the Court held that in approving THPs 
     the BOF must comply not only with the provisions of the 
     Forest Practice Act, but also with the more extensive 
     requirements of CEQA, thus affirming the standard previously 
     imposed by the appellate court in EPIC v. Johnson.
       The Supreme Court ruled that CEQA does vest CDF with 
     authority to require information to expressly specified in 
     the Forest Practice Act rules if the info requested is 
     necessary to determine whether a THP will have a significant 
     adverse environmental impact. Further, the BOF has implied 
     that CDF has the obligation to determine whether a THP 
     incorporates feasible mitigations. It must have 
     information to do so. Therefore, approval of plans without 
     the necessary information is held to violate both CEQA and 
     the Forest Practice Act.
       Conclusions by the DFG, the court held, as to possible 
     effects of timber harvesting on wildlife must be considered 
     by the BOF because possible destruction of old-growth 
     dependent species and their habitat from harvesting of old-
     growth timber can fairly be described as significant and 
     adverse. Thus, the BOF has an obligation imposed by CEQA to 
     collect info regarding the presence of endangered species. 
     The Court also rejected the BOF's rational that the extensive 
     surveys to address wildlife effects were not appropriate 
     because of the costs and time commitments such surveys would 
     impose on forest landowners.
       According to the evaluation by the DFG, logging these lands 
     could have a significant impact on old-growth dependent 
     species. Because DFG identified a potential significant 
     impact, the Court held that the Registered Professional 
     Forester (RPF) must discuss alternatives in the THP, suggest 
     mitigations, and explain why feasible alternatives were 
     rejected. The Supreme Court upheld CDF's requirement that PL 
     provide wildlife surveys done by recognized wildlife 
     professionals of old-growth dependent species in the THP area 
     and in the general vicinity.
       This case involves virgin old-growth redwood and fir in 
     PL's Headwaters Forest area, on Lawrence Creek and Shaw 
     Creek.
       Procedure: THPs 1-88-65HUM and 1-88-74HUM, involving a 
     total of 325 acres, denied by CDF 4/18/88 because wildlife 
     information provided by PL determined to be inadequate. The 
     BOF overturned CDF's denial on 6/8/88; EPIC filed petition 6/
     1/88 (Humboldt Ct. #82371, Judge Buffington). TRO denied 6/
     28; Appellate Ct. issued stay 7/1 and alternative writ 8/15. 
     After trial 10/5/88, judge returned THPs to BOF for further 
     findings. Trial Court denied Writ on 10/2/89 bases on BOF's 
     finding of no significant impact to species or habitat. 
     Appeal Court reversed and remanded for denial of both THPs on 
     9/23/91. Petitions for rehearing filed by Pacific Lumber and 
     EPIC. Appellate Court re-decided case on 3/18/92, holding for 
     EPIC. Appellate decision at 92 DAR 3711. California Supreme 
     Ct. granted Pacific Lumber's petition for review. Status: 
     final-California Supreme Ct. unanimous decision for EPIC on 
     July 21, 1994.
       EPIC Attorneys: Tom Lippe, Bruce Towner, Richard Jay 
     Moller.

                  Selected Cases of Historic Interest


                    EPIC v. PACIFIC LUMBER (OWL ii)

       This THP, which is the same THP involved in Marbled 
     Murrelet v. Pacific Lumber, was denied by CDF 1/30/91. CDF 
     acknowledged the area as habitat for one of only three 
     remaining California marbled murrelet populations, and PL 
     refused to provide adequate murrelet surveys and mitigations. 
     The murrelet was at the time a state ``candidate'' species. 
     On appeal BOF approved THP over objections of CDF, DFG, the 
     Attorney General, and their own counsel. At the BOF hearing 
     PL was given 3 hours to speak, and EPIC's Cecelia Lanman was 
     ejected and threatened with arrest for speaking slighly over 
     five minutes.
       Procedure: Petition filed 3/26/81, Humboldt Ct. #91CO244, 
     alleging violations of CESA. 8/26/91 Ferroggiaro's Alternave 
     Writ required the Board to reconsider the THP. 3/4/82 BOF re-
     approved THP with condition of adequate murrelet surveys.
       On a weekend in June 1992, PL began logging in Owl Creek 
     without approval of state or federal wildlife agencies, and 
     was stopped only by EPIC's legal action. The cut netted over 
     $1,000,000. EPIC obtained TRO in 9/92.
       The murrelet was listed by the state as endangered on 3/12/
     92, and by the United States Fish and Wildlife Service 
     (USFWS) as threatened on 10/1/92. Immediately, USFWS informed 
     PL that the Owl Creek plan, if executed, would violate the 
     Endangered Species Act. PL once again snuck into the grove, 
     on Thanksgiving weekend of 1992. EPIC obtained an emergency 
     stay from the Appeals Court. In March of 1993, PL removed the 
     timber it had illegally cut in November, netting another 
     million. EPIC filed a federal case on 4/15/93.
       This case was eventually dismissed due to the procedural 
     error that EPIC did not contest the BOF ruling within 90 
     days.
       EPIC Attorneys: Julie McDonald, Joseph Brecher.
       EPIC Contacts: Cecelia Lanman, Charles Powell.


                            EPIC v. MAXXAM I

       This suit, EPIC's first against Pacific Lumber (PL) and its 
     corporate parent, involved three THPs proposing to clearcut 
     old-growth redwood and/or Douglas fir forests. Two were in 
     the Headwaters Forest area in Little South Fork Elk River and 
     Salmon Creek watersheds, and one at Sulphur Creek of the 
     Mattole.
       The suit resulted in a ruling that the CDF had not only 
     ``rubber-stamped'' the THPs, but had intimidated the 
     Department of Fish and Game (DFG) and the Regional Water 
     Quality Control Board staff from making any comments critical 
     of THPs. This suit resulted in a DFG policy shift to review 
     some old-growth plans more carefully.
       Procedure: THP 1-87-240 HUM, 1-87-241HUM, 1-87-230HUM 
     approved May/June 1987. EPIC filed Petition 6/4/87 (Humboldt 
     Ct. #79879, Judge Paterson). Status: final 2-4-88: THPs 
     inadequate. PL appealed, but then abandoned its appeal. THP 
     87-230 later resubmitted and approved, but EPIC lacked 
     resources to sue.
       EPIC Attorneys: R. Jay Moller, Tom Lippe, Sharon Duggan, 
     Thomas Petersen.

                                  ____
                                  

                                              The Rose Foundation,
                                                 October 14, 1994.
     Tom Hecht,
     Hopkins & Sutter, Counsel for the Federal Deposit Insurance 
       Corporation, Chicago, IL.
       Dear Tom, I am enclosing summaries of recent and pending 
     cases affecting the Headwaters Forest (as well as a couple of 
     older cases that seemed likely to be of interest). These are 
     abstracted from a draft document that Jama, a volunteer at 
     the Garberville Environmental Public Information Center 
     (EPIC) faxed to me on Wednesday.
       I hope this information is helpful.
       Randy Ghent, who is also a volunteer with EPIC, is working 
     on a map that will provide a sense of what specific areas are 
     directly affected by the cases summarized.
       Thanks again for your interest and attention.
           Sincerely,

                                                  Jill Ratner,

               Rose Foundation for Communities and the Environment

                                  ____
                                  

                                  MEMO

     From: Steven C. Lambert (SCL).
     To: FTH, RWP.
     Date: Wednesday, October 19, 1994 4:42 pm.
     Subject: Rose Foundation Letter.
       I received through inter-office mail a copy of an October 
     12th letter to Tom from Ms. Ratner.
       In her letter, Jill treats several issues--only one about 
     which I will comment here--her discussion about the timber 
     resource. As I appreciate what she is suggesting (and,

[[Page E2465]]

     please understand, I'm not certain of the context in which 
     this subject came up in your call with her), she suggests use 
     of satellite photography in order to get an ``accurate 
     picture of the economic and environmental resources at 
     stake''.
       I'd like an opportunity to discuss her suggestion with you 
     before someone adopts her proposal. If the agency is 
     interested in valuation information about the Headwaters and 
     other PL holdings, I believe it first should look at 
     valuation work already in the public domain--which was based 
     at least in part on an on-the-ground inventory (called a 
     cruise) of the property being appraised. The recent hearings 
     before the House Committee provide some details about an 
     appraisal conducted for the US Forest Service by Jim Fleming 
     (an MAI from Sacramento, CA)--which I believe used cruise 
     information from an Oakland, CA firm (Hammond, Jensen and 
     Wallen) in valuing the 3000 acres of virgin redwood and 
     surrounding 1,500 acres of residual/cutover/young growth 
     forest in the Headwaters. Another valuation, as I recall 
     accomplished at the request of a Congressman, was 
     accomplished by Gary Rynearson of Natural Resources 
     Management, Inc. it was based on similar volume information, 
     but used State Board of Equalization values/MBF for ``average 
     standards similar to those being appraised.''
       You may recall that at our meeting in Chicago I summarized 
     the results of both valuations for Mr. Williams. If you want 
     me to summarize the already-public information in a memo, 
     I'll be happy to do so.
       I have some mis-givings, based on past experience, in 
     trying to determine in any precise way, old growth redwood 
     volumes/values by use solely of aerial photography such as 
     she is describing. The only use for such technology of which 
     I am aware relates to massive resource studies, where 
     ``preciseness'' is not felt to be necessary for the purpose 
     of the study. I know of no valuation of redwood based on such 
     photography.
       However, if the agency wishes to ``go that route'', then I 
     could suggest several firms to consider. I suggest, though, 
     given what I know about the technology and its use (or lack 
     thereof) for valuation purposes, that we shouldn't be 
     ``recommending'' that the agency rely on the type of 
     photography Ms. Ratner is proposing. Rather, I would suggest 
     that IF the agency needs more information than has already 
     been accomplished for the Forest Service, then it should 
     consider hiring someone in the timber appraisal profession to 
     provide the information/opinions it needs. One note of 
     caution: There aren't very many real qualified firms/
     individuals left who appraise redwood--because of the 
     dwindling supply in private ownership, their is a dwindling 
     supply of top-notch redwood cruisers/appraisers. As noted 
     above, 3 firms are now ``off-the-market'' --so IF the agency 
     really believes it will need independent valuation 
     information (even if it is ``down the road''), it might be 
     well for them to consider retaining someone now before they, 
     too, are ``gobbled up'' by Pacific Lumber Company, the Forest 
     Service, the State of California or one of the environmental 
     interest groups.
       Please let me know if you need anything at this time. 
     Thanks.

                                  ____
                                  

                                                Richard DeStefano,


                                              Attorney at Law,

                                      Taos, NM, November 18, 1994.
     Tom Hecht,
     Hopkins & Sutter, Chicago, IL 60602.
     Re: United Savings Association of Texas.
     Your client: Federal Deposit Insurance Corporation.
     My Client: The Rose Foundation.
       Dear Mr. Hecht: I write on behalf of The Rose Foundation in 
     connection with its Headwaters Forest Legal Project, focusing 
     on our efforts to urge the FDIC to seek recovery of the 
     property as a remedy for the looting of United Savings 
     Association of Texas (``USAT''). I participated in 
     preparation of the Rose Foundation's memorandum directed to 
     your colleague, Steve Lambert on September 29, 1994 
     (``Headwaters Memo''), and in the following conference call. 
     Jim Ratner, Rose Foundation's president, has asked me to 
     follow up on certain points by this letter.
       1. Federal cases, generally. My research of California 
     state court decisions and Mr. Camp's review of Texas state 
     court decisions, was incorporated in the legal analysis in 
     the Headwaters Memo. Subsequent research of federal cases 
     strongly supports that analysis. My client has authorized me 
     to provide you with a copy of my federal cases research memo 
     to her dated October 1, 1994, which is enclosed. I conclude 
     there:
       ``There is overwhelming authority for imposition of 
     constructive trusts by federal courts. . . . A federal court 
     will not hesitate to reach MAXXAM and Hurwitz, if their 
     liability is established under state law; will not hesitate 
     to unwind a complex series of transactions such as the quid 
     pro quo described in the statement of facts; and will not 
     hesitate to reach PL [short reference to Pacific Lumber and 
     other MAXXAM subsidiaries which own and control the 
     Headwaters Forest] and its assets as the fruit of MAXXAM'S 
     and Hurwitz's wrongful conduct.''
       2. The quid pro quo. The Rose Foundation contends that 
     Charles Hurwitz and MAXXAM in fact controlled USAT and its 
     investment decisions, and therefore had fiduciary duties to 
     USAT; and that in breach of their fiduciary duties, Hurwitz 
     and MAXXAM entered into an illegal agreement with Michael 
     Milken and Drexel Burnham Lambert (``Drexel''). Pursuant to 
     that illegal agreement, Drexel underwrote a series of junk 
     bond financings on the order of $800 million which enabled 
     MAXXAM to acquire PL and the Headwaters Forest properties, 
     and Hurwitz and MAXXAM caused USAT to invest in over $1 
     billion worth of very low grade, high risk securities 
     underwritten by Drexel.
       As set forth in the Headwaters Memo, these contentions are 
     based on information in the public records, most notably the 
     FDIC's allegations in the federal court action, FDIC v. 
     Milken. In the Headwaters Memo and this letter we assume that 
     the quid pro quo allegations are provable. While we believe 
     the information in the public record is sufficient to 
     establish the existence of a quid pro quo, at least prima 
     facie, we further assume that the FDIC has developed evidence 
     beyond that available to us from public records.
       If the quid pro quo is proven, a Court will view 
     investments by USAT as in effect having been directly made in 
     junk bonds issued by MAXXAM, proceeds of which financed 
     acquisition of PL. In essence the transaction constituted an 
     unsecured loan made by USAT to MAXXAM for acquiring PL, which 
     had it been made directly would have been prohibited by 
     applicable Texas S&L regulations (discussed below). Whether 
     these prohibited transactions damaged USAT or not, they 
     unjustly enriched MAXXAM and Hurwitz (see discussion below), 
     and form the basis for a claim to recover the property now 
     via imposition of a constructive trust.
       3. Role of Ron Huebsch and others. As detailed in the 
     Headwaters Memo pp. 12-16, Ron Huebsch, Barry Munitz, and 
     other Hurwitz associates were active as officers, directors, 
     and investment advisors for USAT as well as other MAXXAM 
     affiliates. Based on Hurwitz's testimony before the Dingell 
     Committee, it appears that Huebsch was the primary buyer of 
     Drexel-underwritten securities for USAT and other entities, 
     including MAXXAM, MCOH, UFG, and PL. A factual inquiry that 
     we assume the FDIC has pursued would be the method of 
     allocating specific securities purchased by Huebsch among 
     USAT and the others if, as we infer, Huebsch purchased 
     ``centrally'' and then allocated the purchases afterwards. 
     These facts tend to show not only de facto control of USAT by 
     MAXXAM/Hurwitz, but would be another basis of breach of 
     fiduciary duty liability if there appeared to be a tendency 
     to allocate riskier issues to USAT.
       4. Causation-in-fact of FDIC damages. MAXXAM may argue that 
     the Drexel, underwritten junk bond investments of USAT were 
     not the cause-in-fact of its demise, and if so it could be 
     argued that the quid pro quo was not a cause of the FDIC's 
     $1.3 billion loss in bailing out USAT depositors. We respond, 
     first, that Louis Ranieri, who took over USAT in 1989, 
     described its investment portfolio as ``80% bologna'', 
     according to the New York Times, February 20, 1989 
     [Headwaters Memo, pp. 23-24].
       Second, we suspect that this defensive argument is premised 
     at least in part on arcane accounting principles that a court 
     would reject. We lack the information, and probably the 
     expertise, to specifically analyze the quality of the junk 
     bond portfolio at the time of USAT's failure, but we assume 
     the defense's argument would include:
       that some junk bonds which had taken a huge hit in their 
     market values, were never in default, and were paying premium 
     returns; arguably, these did not cause any financial damage 
     to USAT. To the contrary, we urge that a Court would hold 
     that the market risk, even more than the risk of default, is 
     why investment in low grade bonds is imprudent; and that this 
     loss of asset value and net worth precipitated in substantial 
     part the insolvency of USAT, and the FDIC losses.
       that some junk bonds in default were later completely 
     redeemed after their issuers were taken over or reorganized, 
     and caused no loss to USAT. Same response.
       If cause-in-fact of USAT's demise is disputed, the issue 
     would be not whether junk bonds caused direct loss of 
     principal and interest to USAT, but whether investment in 
     junk bonds was a substantial factor in the insolvency of 
     USAT. We believe the affirmative is true and provable.
       Third, we understand that USAT's portfolio at its collapse 
     included substantial Drexel-underwritten ``mortgage backed 
     securities'', arguably these, as distinguished from junk 
     bonds, were the cause-in-fact of USAT's demise. We urge that 
     it makes no difference what particular investments, made to 
     accommodate Drexel, actually caused the loss. To restate our 
     third response parallel to the second, the issue is not 
     whether quid pro quo investments caused direct financial loss 
     to USAT, but whether the quid pro quo investments were a 
     substantial factor in the insolvency of USAT.
       5. Unjust enrichment. FDIC claims arising out of the USAT 
     bailout are not dependent on proof even that the quid pro quo 
     caused USAT's insolvency. FDIC is not a mere creditor of 
     USAT, but now stands in place of USAT. FDIC is not limited to 
     complaining about specific transactions which damaged FDIC's 
     interest, but may assert any right or claim of USAT. Under 
     Texas and California law a fiduciary is liable to his 
     principal for any profits obtained in breach of fiduciary 
     duty, even if the principal is not damaged at all, and 
     federal courts do not hesitate to enforce the state 
     substantive law, nor to impose constructive trust 
     remedies.
       Particularly instructive is First Nat'l Bank of La Marque 
     v. Smith, 436 F. Supp. 824

[[Page E2466]]

     (S.D. Tex. 1977). There, officers and principal shareholders 
     of the plaintiff banks were profiting from insurance 
     commissions and rebates generated in connection with credit 
     life insurance which was required by the bank as a condition 
     for certain loans. Federal and state regulators moved 
     administratively to forbid the practice and to require that 
     the commissions and rebates belonged to the banks and not the 
     individuals. The Court specifically found that the banks were 
     not damaged by the practice, yet ruled against the 
     individuals on the grounds of breach of fiduciary duties to 
     shareholders and depositors and unjust enrichment of the bank 
     officers and principal shareholders. The Court stated:
       ``An officer, director or controlling owner of any business 
     entity has a fiduciary duty to make certain that the economic 
     rewards accruing from a corporate opportunity inure to all 
     the owners of the enterprise. This obligation is even 
     stronger in the case of a bank, both because of the fiduciary 
     nature of banking and because of the duty to depositors.'' 
     436 F. Supp. at 830, 831 (emphasis added).
       The La Marque Court cites several other cases for the 
     proposition that controlling persons of banks have higher 
     fiduciary duties than with other businesses. On this issue 
     and the unjust-enrichment-without-economic-loss issue, the 
     opinion seems very strongly to support an action by the FDIC 
     against controlling persons of USAT. See also, Lund v. 
     Albrecht, 936 F.2d 459 (9th Cir. [Cal] 1991) (constructive 
     trust imposed on secret profit from sale of a partnership 
     asset); U.S. v. Pegg, 782 F.2d 1498 (9th Cir. [Cal] 1986) 
     (constructive trust for wrongful acquisition and detention of 
     property belonging to the U.S.); Chien v. Chen 759 S.W.2d, 
     484 (Tex App. 1988) (secret profit by agent who purchased 
     property through ``front man'', so seller was unaware of 
     buyer's true identity as seller's agent and confidant); and 
     Amalgamated Clothing and Textile Workers Union v. Murdock, 
     861 F.2d 1406 (9th Cir. 1988) (pension officials liable to 
     disgorge from self-dealing despite lack of damage to plan 
     members).
       Outside of Texas and California, the rules are the same, 
     that unjust enrichment of a fiduciary without actual damage 
     to the principal, is sufficient for liability. Bush v. 
     Taylor, 893 F.2d 962 (8th Cir. 1990). We have found no 
     authority for the contrary position that damages are 
     essential to a breach of fiduciary duty cause of action, or a 
     constructive trust remedy, in any unjust enrichment scenario.
       6. Texas Savings and Loan Regulations. In the Headwaters 
     Memo, we have argued generally applicable principles of 
     fiduciary liability and constructive trust relief, shying 
     away from discussions of ``banking law'' because of our lack 
     of expertise. We have, however, briefly reviewed Rules of the 
     Texas Savings and Loan Department in effect in 1986. 7 Texas 
     Administrative Code, Chapter 65, which seem to provide 
     additional support.
       6.1 Regarding the propriety of USAT's investment in Drexel-
     underwritten securities, Sec. 65.21, relating to investments 
     in securities, permitted only conservative investments such 
     as obligations of the U.S., the state of Texas, and Texas 
     municipalities, and savings deposits in institutions insured 
     by your client.
       6.2 Throughout the regs, transactions with ``affiliated 
     persons'' are prohibited outright or are limited in scope and 
     require full disclosure to disinterested directors. See, e.g. 
     Sec. 65.11 re loans to affiliated persons; and Sec. 65.19(5) 
     regarding investments in real property. There is no specific 
     prohibition on investments in securities issued by affiliated 
     persons, but this is because the list of permitted issuers of 
     securities is so limited.
       6.3 The regs define ``Affiliated Person'' to include 
     ``controlling person'', not just directors and officers 
     (65.3). This would seem to be exclusively factual, and 
     provable here.
       6.4 The regs limit aggregate loans to one borrower 
     (Sec. 65.4) to the net worth of the association. If the quid 
     pro quo is viewed as, in substance, an unsecured loan to 
     MAXXAM for acquisition of PL, compare the amounts of 
     purchases of Drexel-underwritten securities in 1985-1987,with 
     the net worth of USAT at year-end for those years:

                      Year; Purchases; Net Worth:

     1985, $280 million, $163 million
     1986, 688 million, 249 million
     1987, 321 million, 63 million
       6.5 Loans to affiliated persons are further restricted, 
     requiring the approval of a majority of disinterested 
     directors at a regular board meeting (Sec. 65.11).
       6.6 ``One borrower'' is defined to aggregate loans made to 
     affiliated entities where one hold only 10% of the other's 
     stock (Sec. 65.3).
       7. Full disclosure. If disclosure to the independent 
     directors of USAT or United Financial Group of material facts 
     relating to investment decisions of USAT, is germane to 
     FDIC's potential challenge of those decisions, the disclosure 
     must be complete and meaningful, and extend not just to the 
     superficial facts about a particular investment, but to the 
     existence and extent of the quid pro quo. It seems almost 
     certain that the outside directors of USAT/UFG would contend 
     that they had no knowledge of the quid pro quo, that they did 
     not know that USAT's investments in Drexel-underwritten 
     securities were used to finance MAXXAM's acquisition of PL, 
     and if they had known, would have disapproved, and it also 
     seems likely that these outside directors would be believed, 
     and a Court would find that there was no adequate disclosure.
       8. The endangered Species Act (``ESA'') and the mission of 
     FDIC. While the FDIC is primarily focused on recovering 
     money's worth for its loss in USAT, we urge that all federal 
     agencies are mandated to consider the impact of their 
     decisions on endangered species. The Headwaters Forest is 
     habitat for several endangered and threatened species, as 
     detailed in the Headwaters Memo.
       The ESA states that ``[I]t is the policy of Congress that 
     all Federal . . . agencies shall seek to conserve endangered 
     species and shall utilize their authorities in furtherance of 
     the purposes of this chapter''. 16 U.S.C. 
     Sec. 1531(c)(1)(emphasis added), and further requires that:
       ``. . . all . . . Federal agencies shall, in consultation 
     with the Secretary [of the Interior], utilize their 
     authorities in furtherance of the purposes of this chapter by 
     carrying out programs for the conservation of endangered . . 
     . or threatened species. . . .'' (16 U.S.C. Sec. 1536(a)(1).
       The ``duty to conserve'' is an affirmative obligation of 
     all federal agencies. Pyramid Lake Paiute Tribe v. U.S. Dept. 
     of the Navy, 898 F.2d 1410. The ESA further provides that:
       ``. . . each Federal Agency shall . . . insure that any 
     action authorized, funded, or carried out by such agency is 
     not likely to jeopardize the continued existence of any 
     endangered . . . or threatened species or result in the 
     destruction or adverse modification of habitat of such 
     species which is determined . . . to be critical. . . .'' (16 
     U.S.C. 1536(a)(2).
       Accordingly we urge that the FDIC decision makers who will 
     decide whether to seek recovery of the Headwaters Forest 
     properties have an affirmative duty to conserve the 
     endangered and threatened species who inhabit the forest, and 
     further that the decision not to pursue recovery of the 
     properties, if there is a reasonable legal basis to do so, 
     may be in violation of the ESA.
       9. Conclusion. We believe a federal court will view this 
     case as involving related, illegal transactions, which 
     destroyed USAT and benefitted Hurwitz and MAXXAM; and will 
     hold that Hurwitz and MAXXAM had fiduciary duties to USAT 
     (and therefore to the FDIC), breached those duties, and were 
     unjustly enriched by their breach. The court will not see 
     Hurwitz and MAXXAM as careful to walk just this side of 
     liability, but rather as participants in the looting of a 
     Savings and Loan who are now destroying the Headwaters 
     Forest. We urge the FDIC to take immediate action to restrain 
     logging the Headwaters Forest, and to proceed as swiftly as 
     possible to recover this irreplaceable asset.
           Very truly yours,

                                            Richard DeStefano.

                                  ____
                                  

                               Record 8A

               [From the Humboldt Beacon, Aug. 26, 1993]

          Earth First! Wants 98,000; 4,500 Acres Tops, PL Says

                       (By Glenn Franco Simmons)

       Contrary to many published and televised reports, 
     Congressman Dan Hamburg's bill if passed will affect nearly 
     60,000 acres--not 44,000 as Hamburg proposed.
       Furthermore, Hamburg has proposed another 13,500 acres to 
     be set aside as ``study acres.''
       Earth First! has set its goal at 98,000 acres.
       ``It's too much,'' Bullwinkel said. ``We can't afford to 
     keep setting aside more productive timber land.''
       Hamburg has said that much of the land, if his bill 
     succeeds, would still be open to ``sustainable'' logging.
       ``When has the federal government been able to do any job 
     better than private industry?'' asked Pacific Lumber Co. 
     spokesperson Mary Bullwinkel.
       She said PALCO does not believe the federal government can 
     be a better steward of the forests than private timber 
     companies.
       What Is The Headwaters?
       The freshman congressman's bill calls for the purchase or 
     exchange of 44,000 acres of what appears to be mostly PALCO-
     owned land in the Headwaters area about 10 to 15 miles 
     northeast of Fortuna, Bullwinkel said.
       ``The reason they named it the Headwaters Forest,'' 
     Bullwinkel noted, ``is because it's at the headwaters of two 
     streams: Salmon Creek and the Little South Fork of Elk 
     River.''
       ``The Headwaters bill came from a very radical proposal put 
     together by people who made the Headwaters an issue,'' said 
     Earth First! spokesperson Alicia Little Tree. ``They have 
     been working on it for eight years: Earth First!, E.P.I.C. 
     and other people who have been concerned about the well-being 
     of Headwaters.
       ``They put together a proposal that calls for not only a 
     debt-for-nature swap, but also an employee-stock-option plan 
     for the businesses to restore the Headwaters . . . that has 
     been decimated by these years of logging by Maxxam.''
       The activist said Hamburg picked up on the original 
     proposal that she called ``visionary.''
       ``Hamburg, who is a first-year congressperson,'' Little 
     Tree said, ``. . . did pretty good to get through the shell 
     of the proposal that he got through, which is about all we 
     could get in a compromise situation.
       ``I think he has done all he can, and I appreciate his 
     work. He should be congratulated for all he could do.''
       Despite having reservations, she said she didn't disagree 
     with Hamburg's proposal.
       ``I think a lot more is needed to protect the Headwaters,'' 
     she noted, ``because the bill calls for willing sellers. 
     Maxxam clearly stated that (it) is not willing to sell 4,500

[[Page E2467]]

     acres. Selling Headwaters as a 4,500 acre island doesn't do 
     anything to protect the ancient-redwood ecosystem. It just 
     creates an isolated island of old trees; kind of like a 
     museum, except the trees die from the `edge effect' and from 
     being so fragmented. It dries out and kills it from the 
     edges in.''
       She said examples of the edge effect can be found in 
     Humboldt Redwoods State Park in Southern Humboldt. One 
     example, she said, is just south of Stafford in the first 
     old-growth redwood groves below Visa Point.
       ``You can just drive past them,'' Little Tree said. ``There 
     are blow downs; they are no longer regenerating.''
       PALCO has offered to negotiate for the fair-market-value 
     sale of 4,500 acres of what it considers the Headwaters. 
     About 3,000 acres of that is old growth and the 1,500-acre 
     ``buffer,'' has a mixture of old- and second-growth trees, 
     Bullwinkel said.
       The trees are primarily redwood, although there are some 
     Douglas fir.
       It will not only be PALCO that is affected by Hamburg's 
     proposal.
       ``There are private ranches out there,'' Bullwinkel said, 
     ``as well as some Sierra Pacific and Simpson land and back in 
     there.''
       No one seems to know what the boundaries of Hamburg's 
     proposal are.
       ``Well, if you call Hamburg's office, they tell you that 
     they really can't give you a map because they really don't 
     have one because they say it `is evolving','' Bullwinkel 
     said. ``Then you call the Forest Service and they say they 
     have what they believe are the boundaries.
       ``But, do they realize how far the boundary of Hamburg's 
     bill is from the boundary of the Six Rivers National Forest? 
     There is this huge gap in there. How are they going to add 
     this land to the national forest?''
       Bullwinkel said that at this point, she does not know of 
     any proposals other than the Earth First! proposal that calls 
     for 98,000 acres.
       However, she admitted it's a possibility.
       ``We don't know; there is always a potential that it could 
     grow,'' she said, ``but that would be devastating. The 44,000 
     acres is devastating enough. Let's talk disaster for Humboldt 
     County. How much more land are we going to take out of 
     production?''


                              EFI Proposal

       Little Tree said Earth First! wants more land set aside 
     than is targeted in Congressman Dan Hamburg's bill to protect 
     animal and plant species.
       ``A lot of the species that live in the old-growth forest 
     are specifically old-growth species,'' Little Tree said. 
     ``So, if you have this little island, you get a very, very 
     in-bred gene pool and they have no place to spread out.
       ``Earth First! is calling for a 98,000-acre wilderness 
     complex, but not to lock-up the Headwaters forest but to 
     create buffers and to put people back to work in the woods 
     actually creating healthy ecosystems.
       ``. . . We are calling for 98,000 acres to preserve the 
     Headwaters grove and the four other old-growth groves that 
     are inside the boundaries of the `wilderness' complex,'' she 
     continued. ```This would really mean taking it out of the 
     hands of corporate control and putting it in the hands of our 
     community. It would make it so our community can decide what 
     will happen in the woods, so we can create long-term 
     stability in our community.''
       Bullwinkel said 98,000 acres is too much.
       ``Well, that is outrageous--98,000 acres?'' she said. ``I 
     think they are proposing that at this time to make it look 
     more attractive, to make Hamburg's proposal look more like a 
     compromise.''
       What about eminent domain, in which the government 
     appropriates and pays ``fair-market value'' for property it 
     deems as needing to be government-owned for the public good? 
     In such cases, landowners have no choice but to ``sell.''
       ``Ultimately, our goal is to have community control of the 
     acres in which we live and the areas in which we work--
     community control of the actual work and the actual jobs,'' 
     Little Tree said. ``There shouldn't be anyone who has to pick 
     up and leave or be forced out of the area. And that is 
     exactly what the government is calling for--a short-term 
     mind-set that is going to create a deprived timber industry 
     in which they clear-cut all the trees and (implement) even-
     aged management.
       ``I don't think the government can offer us any solutions. 
     The solutions have to come from the community itself, from 
     coming together and creating the solutions . . . The federal 
     government has a lot to do and they are not really that 
     concerned about the integrity of our communities.''
       Bullwinkel said eminent domain is always a concern, 
     although she hasn't heard of a concrete proposal.


                           Earth First! Goals

       ``I would just like to talk about our goals and objectives 
     of this week.'' Little Tree said at a news conference held in 
     Rio Dell on Monday. (See related story on page 1.) ``Many 
     people knew about Headwaters and the Headwaters proposal. 
     It's outrageous that we have to file a bill in Congress to 
     protect the last of the ancient redwoods from a man who stole 
     them in the first place; that we have to buy them from 
     Hurwitz who stole them with a junk-bond bailout.
       ``. . . We want Hurwitz in jail. . . . We don't want to 
     have to reward Hurwitz for stealing the Headwaters by paying 
     him money.''
       Bullwinkel said that demanding the arrest of Hurwitz is 
     ``ridiculous.''
       The second demand is an ``exchange.''
       ``We think it should be a debt-for-nature swap,'' Little 
     Tree said,'' whether he (Hurwitz) should give Headwaters to 
     the public and the money that would go to the purchase of it 
     should go to creating stability and jobs in the community as 
     far as restoration work and creating some sort of sustainable 
     timber economy in our region.''
       ``When has Earth First! ever brought any jobs to this 
     area?'' Bullwinkel asked in response.
       The other demand is ``an immediate moratorium on logging in 
     the Headwaters wilderness complex area.'' Little Tree said.
       Although the boundaries of Hamburg's proposal remain in 
     limbo. Bullwinkel said Earth First! is mistaken if it 
     believes that PALCO is logging in what it considers the 
     Headwaters area.

                                  ____
                                  

                                Record 9

     To: Jack D. Smith@LEGAL OGC Hdq@Washington
     From: Jeffrey Williams@LEGAL PLS2@Washington
     Subject: USAT/military bases
     Date: Monday, April 3, 1995 10:14:39 EDT
       Jack: Just a note regarding our brief discussion on Charles 
     Hurwitz and exploring creative options that may induce a 
     settlement involving the sequoia redwoods in FDIC/OTS case: I 
     have reviewed the statutes and regulations regarding the 
     closure and revitalization of military bases and other 
     facilities. The pace of sales has not met the services' 
     expectations and they are desparate to expedite and 
     accommodate interested investors. I spoke with a Department 
     of Defense official on the general means to acquire some 
     property and there are numerous ways. Among them are: (1) 
     preference is given to interest expressed by another federal 
     agency for which the facilities may be transferred without 
     cost (e.g., Army barracks to FDIC, FDIC interest transfers to 
     Hurwitz-entity); (2) second preference is to a local economic 
     redevelopment entity that involves municipal or country 
     agency, which then can transfer to investors; (3) other 
     creative options will be considered. The US government is 
     responsible for environmental clean-up. It seems possible to 
     devise a proposal that may interest Hurwitz and get the 
     cooperation of DOD and local redevelopment group to work with 
     FDIC and Hurwitz to come up with a viable plan, particularly 
     in Texas where Hurwitz would get significant positive public 
     exposure. I obtained from DOD list of all bases that are or 
     will soon be closed that have facilities for sale or lease. I 
     also am reviewing media articles that cover successful 
     transfers of such property to investors and will keep you 
     informed of any interesting developments.
       If you have any questions or concerns, please let me know.
                                                    J.R. Williams.

                                  ____
                                  

                               Record 10

       Easy thing for staff to do would be send the existing draft 
     ATS to the Board and manually file suit. Also easy for entire 
     counsel (remember, they always want to say). That is not what 
     we recommend. We recommend continued work [w/defense 
     counsel--] on (1) the merit of FDICs claim; (2) a possible 
     capital maintenance claim by OTS against MAXXAM.
       Why? (1) Tactically, combining FDIC & OTS claims--if they 
     all stand scrutiny--is more likely to produce a large 
     recovery/the trees than is a piecemeal approach; (2) Both 
     sides are learning/developing their case. And I believe that 
     counsel for both sides truly wants and needs a better 
     understanding of the case than we currently have.
       9 mos ago, I was prepared to go with a ``straddle'' theory 
     and some other bits and pieces, eg, dividend--not to be 
     confused w/the RICO claim. Villa's submissions have been 
     voluminous & instructive; they have also been advocacing--
     some ``facts'' have been stretched.
       We have paid the case ``back'' to $200 million and we are 
     very closer whether to sue Dr. Kozmetabi at all.
       Options: (1) Defer it all, incl. OTS, until (probably) 4th 
     quarter '94; (2) Authorize suit, but hold off filing; (3) 
     Authorize and file around the edges; (4) Sue (or settle) UFG 
     on tax and cognital maintenance, and option 1 or 2 on the 
     rest; (5) Option 2 or 3 except defer on Dr. Kozmetabi.
       If this wasn't public, the FDIC would do #1. Know as much-
     more as usual, but complex and both sides still learning. I 
     think we should do it here--but complaints are likely 
     (whatever we do).

                                  ____
                                  

                      5/19/95 PC--from Jill Rather

       Alan McReynolds--Asst to Sec. of Interior--
       Jeoff Webb--Sec. Congressional Liaison
       Jay Ziegeler--Asst to * * *
       Jill did fly over Headwaters w/McReynolds last week. 
     McReynolds--mostly interested in land for land swap. vis-a-
     vie military/or bases for trees.
       McReynolds grew up with Hurwitz & their families still have 
     contact with one another. Did base conversion with at DOD.
       Levan met w/McReynolds, Webb & Ziegeler--this past Tuesday. 
     Intention is that discussion will continue. Webb and Ziegeler 
     will consider doing preliminary work to explore whether or 
     not fax notice would work. There is no clear cutting going on 
     outside of Headwaters but injunction was lifted yesterday.


[[Page E2468]]


                                  ____
                                  

     To: Jill Ratner, Rose Foundation.
     From: Natural Heritage Institute.
     Re: Federal Inter-Agency Land Transfer Mechanisms.
     Date: April 19, 1995.


                            I. Introduction

       You have asked us to provide you with an analysis of the 
     mechanisms under Federal law by which the Federal Deposit 
     Insurance Corporation (FDIC), as title-holder of the 
     Headwaters Forest, may be authorized to transfer the forest 
     to a Federal, State, local, or private entity rather than 
     disposing of it through sale.
       Our research has uncovered six Federal statutory programs 
     that allow property under the control of one Federal agency 
     to be transferred to another Federal agency or into non-
     Federal hands. These programs may be characterized as either: 
     (1) ``exchange'' programs, under which a Federal land-
     management agency trades some of its land for non-Federal 
     lands of approximately equal value in order to carry out 
     agency objectives; (2) ``transfer'' programs, under which 
     property no longer required by one Federal agency is simply 
     given to another Federal agency; or (3) ``disposal'' 
     programs, under which Federal property no longer required by 
     any Federal agency is transferred to a state, local, or 
     private entity.
       It is difficult to determine at this point which of these 
     programs, if any, would best accomplish the Rose Foundation's 
     goals. None of these programs specifically authorizes the 
     precise type of transaction in question here, i.e., the 
     transfer of property acquired by the FDIC in settlement of a 
     legal claim (as opposed to property acquired via normal 
     appropriations and procurement procedures). Furthermore, 
     there are no particular sets of circumstances under which 
     transfers are mandatory under any of these programs. At the 
     same time, none of the statutes or regulations or cases 
     interpreting them specifically prohibits such a transaction. 
     A review of these sources indicates that any decision by an 
     agency to enter into any kind of land-transfer transaction 
     will be, in fact, almost entirely discretionary, regardless 
     of the program. Thus, the primary concern under each program 
     will be to convince the appropriate agency that the 
     transaction in question will serve both the public interest 
     broadly, the agency's interest specifically, and relevant 
     political factors.
       Of all the programs analyzed, those involving the disposal 
     of surplus Federal or military real property are probably 
     the best candidates, as they do not categorically require 
     reimbursement to the disposing agency. These programs are 
     more restricted than the others, however, in that only 
     certain agencies may receive surplus real property, and 
     then only for certain enumerated purposes. Under these 
     programs, therefore, an intermediary agency such as the 
     Park Service would initially receive the surplus property 
     for the disposing agency and then later transfer it to the 
     FDIC in exchange for Headwaters with the understanding 
     that Headwaters would be managed only for authorized uses. 
     Thus, the disadvantage to these programs is that they will 
     require an agreement between three parties instead of two, 
     and this disadvantage may ultimately be preclusive. In 
     addition, if pending legislation introduced by Congressman 
     Rohrabacher (R-CA) is passed, it would prohibit the 
     disposal of surplus military property for exchange 
     purposes, thus precluding the type of transfer we are 
     proposing for Headwaters insofar as military property is 
     involved.
       It would be imprudent to recommend pursuing one or more 
     programs over all others until exploratory meetings with 
     agency representatives are concluded. Given the discretionary 
     nature of all of the programs, political considerations 
     rather than legal and regulatory fineres will be of paramount 
     concern. With the right amount of political will, however, we 
     believe that Headwaters can be placed in the hands of an 
     appropriate management entity without public expenditure or 
     independent legislation.


                              II. ANALYSIS

       When the FDIC, in its capacity as receiver for a failed 
     institution, takes title to land held by another in 
     satisfaction of a claim against that person arising from 
     wrongdoing related to the failure of a financial institution, 
     the FDIC forwards title to the land to its regional real 
     estate sales division for disposal. Funds from the sale go 
     into the appropriate receivership account to cover 
     administrative costs, and then into the general insurance 
     fund as reimbursement for funds expended in covering the 
     deposits in the failed institution.
       There does not appear to be any statutory or regulatory 
     mechanism in place whereby the FDIC may dispose of assets 
     acquired in satisfaction of a claim against a director of a 
     failed institution without any reimbursement whatsoever. Such 
     a transaction may, however, be provided for under internal 
     FDIC policy guidelines, under the general receivership 
     provisions of the bankruptcy laws, or under the FDIC's 
     corporate powers, and further research on this issue may be 
     warranted. The FDIC is authorized to settle claims by 
     accepting property at less than market value, although any 
     such settlement must be approved by the FDIC's board of 
     directors.
       The FDIC's primary interest is to restore to the general 
     insurance fund any funds expended in satisfaction of a 
     failed institution's depositors' claims pursuant to a 
     bail-out. We may assume, then, that it is immaterial to 
     the FDIC whether one particular piece of property is sold 
     in order to obtain those funds, as opposed to another 
     piece of property, so long as the funds owned are actually 
     recovered. Thus, if a mechanism exists whereby another 
     Federal agency holding land of approximately equal value 
     may exchange that land for land held by the FDIC for sale, 
     the FDIC might raise no objection so long as the two 
     parcels were in fact worth the same amount. Further 
     research is required regarding the FDIC's corporate 
     powers.
       Since there are no internal means by which the FDIC may 
     transfer assets it has recovered, via constructive trust or 
     otherwise, to third-party public or private entities without 
     reimbursement, it is necessary to examine the statutory and/
     or regulatory procedures under which real property held by a 
     Federal agency may be transferred, without cash payment and 
     without independent legislation, to other Federal agencies or 
     to state and local bodies. Such procedures may provide for an 
     exchange of lands between FDIC and another Federal agency, 
     preferably one suited for management and control of 
     Headwaters, whereby FDIC would take title to property 
     belonging to the other agency in exchange for Headwaters. 
     FDIC would then be free to dispose of the land it received in 
     exchange in any manner it sees fit.
       Our research has found six statutory procedures that may 
     provide for such an exchange. These procedures are:
       1. Transfer of ``excess'' property among Federal Agencies 
     under the Federal Property and Administrative Services Act 
     (FPASA).
       2. Disposal of ``surplus'' Federal property to State or 
     local governments under FPASA.
       3. Disposal of surplus military property under the Base 
     Closure and Realignment Act of 1990.
       4. Disposal of surplus Federal and military property to 
     state fish and wildlife agencies for wildlife conservation 
     purposes under 16 U.S.C. Sec. 667b.
       5. Land exchange under the Federal Land Policy and 
     Management Act (FLPMA) as amended by the Federal Land 
     Exchange Facilitation Act (FLEFA).
       6. Disposal of public lands to state and local agencies or 
     non-profit organizations for park and recreation purposes 
     under the Recreational and Public Purposes Act (RPPA).
       Each of these procedures provides for property in the 
     jurisdiction or control of one Federal agency to be 
     transferred either to another Federal agency, a state or 
     local agency, or a private entity without a public sale and 
     without cash payment. Some require compensation in the form 
     of lands of approximately equal value (see section E of this 
     memorandum, infra). Thus, working from the premise discussed 
     in the above introduction, that FDIC would be authorized and 
     willing to exchange Headwaters for land of proximately equal 
     value, any of the programs discussed here could provide the 
     statutory or regulatory basis for such an exchange.
       Case law addressing these statutory land-transfer 
     procedures is scant. In general, the few cases involving 
     attacks on an agency's decision to undertake a specific 
     transfer of land have primarily addressed questions of: 
     plaintiffs' standing to sue the agency (see, e.g., Rhode 
     Island Comm. on Energy v. GSA (II), 397 F.Supp. 41 (1975)); 
     the validity of an agency's determination that a proposed 
     transfer is in the ``public interest'' (see, e.g., National 
     Coal Ass'n v. Hodel, 617 F.Supp. 584 (1985)); the adequacy of 
     transfer-related Environmental Impact Statements required 
     under the National Environmental Policy Act (NEPA) (see, 
     e.g., Rhode Island Comm on Energy v. GSA (I), 561 F.2d 397 
     (1977)); and whether the amount of land acquired was larger 
     than necessary to meet the transferee agency's needs (see, 
     e.g., U.S. v. 82.46 Acres of Land, etc., 691 F.2d 474 
     (1982)).
       Thus, this memorandum focuses on the mechanics of these 
     land-transfer procedures, analyzing the statutes themselves 
     and their administering regulations.

             A. Transfer of ``excess'' property under FPASA

       The Federal Property and Administrative Services Act 
     (FPASA) (40 U.S.C. Sec. 471 et seq.) governs the disposition 
     of property under the jurisdiction and control of a Federal 
     agency that no longer needs it. Under FPASA, when a Federal 
     agency determines that property under its control is not 
     required for its needs and the discharge of its 
     responsibilities, such property is designated ``excess 
     property.'' 40 U.S.C. Sec. 472(e). FPASA then imposes a duty 
     on all executive agencies to transfer their excess property 
     to other Federal agencies whenever practicable, 40 U.S.C. 
     Sec. 483(b), and, correspondingly, to obtain excess property 
     from other Federal agencies rather than purchasing new 
     property. 40 U.S.C. Sec. 483(c); 41 C.F.R. Sec. 101-47.203-2.

                              i. Procedure

       Under FPASA, once an agency designates a particular piece 
     of property as ``excess,'' the agency must promptly inform 
     the General Services Administration (GSA) of the property's 
     availability for transfer. Id. at Sec. 483(b). GSA maintains 
     records of all Federal property reported as excess. See 41 
     C.F.R. Sec. 101-47.202-3. Also under FPASA, when an agency 
     (or a mixed-ownership Government corporation such as the 
     FDIC) determines that it requires additional property to 
     carry out an authorized program, it must likewise inform GSA. 
     Id. at 483(c); 41 C.F.R. Sec. 101-47.203-3. Upon receiving 
     notice from an agency that property is required, GSA will 
     review its records of property reported excess, and its 
     own inventory of excess property, to ascertain whether any 
     such property may be suitable for the needs of the 
     requesting agency.

[[Page E2469]]

     41 C.F.R. Sec. 101-47.203-3 GSA must promptly notify the 
     agency whether any available excess property is suitable. 
     Id.
       If after receiving such notice an agency determines that 
     the excess property of another agency will suit its needs, 
     the agency must prepare and submit ``GSA Form 1334, Request 
     for Transfer of Excess Real and Related Personal Property.'' 
     41 C.F.R. Sec. 101-47.203-7(a). Then, upon determining that 
     the requested transfer is ``in the best interest of the 
     Government and that the requesting agency is the appropriate 
     agency to hold the property'' (41 C.F.R. Sec. 101-47.203-
     7(b)), GSA may execute the transfer so long as the transfer 
     is consistent with applicable GSA policy guidelines. 40 
     C.F.R. Sec. 483(a)(1); 41 C.F.R. Sec. 101-47.203-7(d), (e).

                           ii. Reimbursement

       When a transfer of excess property is approved, FPASA 
     authorizes GSA, with the approval of the Director of the 
     Office of Management and Budget (OMB), to ``prescribe the 
     extent of reimbursement'' for the transfer. 40 U.S.C. 
     Sec. 483(a)(1). Although FPASA allows for transfers without 
     reimbursement in certain situations 41 C.F.R. Sec. 101-
     47.203-7), reimbursement at ``fair market value'' as 
     determined by GSA is required when a mixed-ownership 
     Government Corporation, like the FDIC, is either the 
     transferor or the transferee agency. 41 C.F.R. Sec. 101-
     47.203-7(f).
       Although neither FPASA nor the Federal Property Management 
     Regulations specifically provide for reimbursement in-kind in 
     the form of property of equal value, neither do they 
     specifically prohibit it. Given the Congressional intent to 
     enable and facilitate land-exchanges under Sec. 484(a), see 
     Section B, infra, as well as under other programs, however, a 
     colorable argument exists that FPASA should be interpreted as 
     allowing an agency to transfer its excess property to another 
     agency and receive property of equal value in return. Thus, 
     any excess property currently held by a Federal agency 
     authorized to manage Headwaters should be conveyable to FDIC 
     under 40 U.S.C. Sec. 483 in exchange for Headwaters, if the 
     conveyed property is of approximately equal value.

            B. Disposal of ``surplus'' property under FPASA

       FPASA defines ``surplus'' property as ``any excess property 
     not required for the needs and the discharge of 
     responsibilities of all Federal agencies, as determined by 
     [GSA&].'' 40 U.S.C. Sec. 472(g). GSA will generally declare 
     surplus any excess property reported to it pursuant to 40 
     U.S.C. Sec. 483(b), supra, if it determines, after 
     reviewing other agencies' requests for property pursuant 
     to 41 C.F.R. Sec. 101-47.203-3, supra, that the property 
     does not match the needs of any other agency. 41 C.F.R. 
     Sec. 101-47.204-1. In other words, ``excess'' property is 
     property no longer required by the agency holding it, 
     while ``surplus'' property is property not required by any 
     Federal agency.

                 i. GSA's disposal authority in general

       FPASA authorizes GSA to dispose of surplus Federal property 
     by sale, exchange, lease, permit, or transfer for cash, 
     credit, or other property, upon such terms and conditions as 
     it deems proper. Id. at Sec. 484(a), (c). FPASA further 
     provides that ``[a]ny executive agency entitled to receive 
     cash under any contract covering the lease, sale or 
     disposition of surplus property may in its discretion accept, 
     in lieu of cash, any property determined by the President to 
     be strategic or critical material at the prevailing market 
     price thereof at the time the cash payment or payments became 
     or become due.'' 40 U.S.C. Sec. 485(f). These two sections 
     may therefore provide sufficient authority for GSA to 
     transfer another agency's surplus property to FDIC in 
     exchange for Headwaters, if the ``President'' determines that 
     Headwaters constitutes ``strategic or critical material.''

                   ii. The ``land for parks'' program

       Although the authority provided by Sec. Sec. 484(a) and 
     485(f) should be thoroughly considered, a subsequent section 
     of FPASA may ultimately prove more useful. FPASA specifically 
     authorizes GSA to assign to the National Park Service (NPS) 
     for disposal any surplus real property ``as is recommended by 
     the Secretary of the Interior as needed for use as a public 
     park or recreation area.'' 40 U.S.C. Sec. 484(k)(2) 
     [hereinafter, ``the Lands to Parks Program'']. Subject to the 
     disapproval of the GSA, NPS may then ``sell or lease such 
     real property to any State, municipality, or political 
     subdivision for public park or recreational use.'' Id. at 
     Sec. 484(k)(2)(A).

             ii. Procedure under the Lands to Parks Program

       The regulations enforcing the Lands to Parks Program 
     provide that whenever GSA determines property to be surplus, 
     GSA will provide notice by mail to all public agencies 
     eligible to receive such property that the property has been 
     declared surplus. 41 C.F.R. Sec. 101-47.303-2(b). In 
     particular, a copy of this notice ``shall be furnished to the 
     proper regional or field office of the NPS or the Fish and 
     Wildlife Service.'' 41 C.F.R. Sec. 101-47.303-2(d). In the 
     case of real property that ``may be made available for 
     assignment to the . . . Secretary of the Interior for 
     disposal under [the Lands to Parks Program],'' GSA shall 
     inform the appropriate regional office of the NPS three 
     workdays in advance of the date the notice to be given 
     simultaneously by NPS to additional interested public bodies 
     of State and local government. 41 C.F.R. Sec. 101-47.303-
     2(e).
       The regional NPS office then reviews such notices and 
     informs interested state and local planners and park and 
     recreation officials of site availability. Attachment B at p. 
     2. Any state or local agency wishing to acquire the property 
     must notify NPS of their interest. Id. NPS will then work 
     with the agency to develop an application for transfer of the 
     land and forward the application to GSA, recommending its 
     approval. Id.
       GSA will advise NPS of any additional information required 
     to process the state or local agency's application to procure 
     the property. 41 C.F.R. Sec. 101-47.303-2(h). Upon receipt of 
     the complete application for the property, GSA will consider 
     and act upon it, either granting or denying the transfer. 41 
     C.F.R. Sec. 101-47.303-2(i).

                           iii. Reimbursement

       In fixing the sale or lease value of property so disposed, 
     the Secretary of the Interior must take into consideration 
     ``any benefit which has accrued or may accrue to the United 
     States from the use of such property by any such State, 
     political subdivision, instrumentality, or municipality.'' 40 
     U.S.C. Sec. 484(k)(2)(B). This subsection is interpreted as 
     permitting the Secretary of the Interior to convey such 
     property to eligible State or local agencies without 
     consideration or reimbursement.

                c. Disposal of surplus military property

       The Defense Authorization Amendments and Base Closure and 
     Realignment Act of 1990 (part A of title XXIX of Public Law 
     101-510; codified as 10 U.S.C. Sec. 2687 note) provides that 
     the Administrator of General Services shall delegate to the 
     Secretary of Defense, with respect to excess and surplus real 
     property and facilities located at a military installation 
     closed or realigned, ``the authority of the [GSA] to dispose 
     of surplus property under [the Lands to Parks Program].'' 10 
     U.S.C. Sec. 2687 note Section 2905(b)(1)(B). The Act further 
     provides that the Secretary of Defense shall exercise this 
     authority in accordance with all the regulations governing 
     the disposal of surplus property propagated under FPASA, viz, 
     the Federal Property Management Regulations, Title 41, 
     Chapter 101 of the Code of Federal Regulations, supra. Id. at 
     Section 2905(b)(2)(A)(i).
       Thus, under the Act, the Department of Defense (DoD) is 
     authorized to assign surplus military property to the NPS for 
     disposal to State and local agencies for public park and 
     recreational use in accordance with the Lands to Parks 
     Program. The analysis of GSA's activities under the Lands to 
     Parks Program thus applies equally to DoD's activities under 
     Section 2905 of the Act, and may be incorporated here by 
     reference.

                              i. Procedure

       The regulations governing the disposal of surplus military 
     property appear in Title 32 of the C.F.R. These regulations 
     provide that in exercising the authority delegated to it by 
     GSA to dispose of surplus property, DoD is to follow the same 
     property disposal rules and procedures that the GSA follows, 
     i.e., the Federal Property Management Regulations. 42 C.F.R. 
     Sec. 91.7(a)(1). However, the DoD regulations further allow 
     for an ``expedited process'' under which other DoD entities, 
     other Federal Agencies, and providers of assistance to the 
     homeless may identify military property they wish to acquire 
     before the base closes, and forward requests to DoD. Id. DoD 
     will then work with the other DoD Components, Federal 
     Agencies, homeless providers and reuse planners early in the 
     closure process, in order to sort out these requests. Id.
       Military Departments must make the notices of availability 
     available to Federal agencies, local redevelopment 
     authorities, and State and local governments. 32 C.F.R. 
     Sec. 91.7(a)(6). For a six-month period thereafter, the 
     Military Departments shall consult with the local 
     redevelopment authority and make appropriate final 
     determinations whether a Federal agency has identified a use 
     for, or shall accept transfer of, any portion of the 
     property. 32 C.F.R. Sec. (a)(7). If no Federal Agency 
     requests the property during this period, the property is be 
     declared surplus. Id.
       This screening or DoD's excess real property to ascertain 
     whether it matches property requests from other Federal 
     Agencies must be completed within 6 months of the date of 
     approval of the 1995 closures. 32 C.F.R. Sec. (a)(4)(ii). 
     This timeframe is meant to afford Federal Agencies sufficient 
     time to assess their needs, submit initial expressions of 
     interest to the Department of Defense, and apply for the 
     property. 32 C.F.R. Sec. (a)(5). During this period, Agencies 
     sponsoring public benefit conveyances, such as NPS, should 
     also consider the suitability for such purposes. Id. In the 
     Notice of availability, the Military Departments must provide 
     other Federal agencies with as full and complete information 
     as practicable regarding the subject property. Id.; see 41 
     C.F.R. Sec. 101-47.303-2(b). Requests of transfers of 
     property submitted by other Federal Agencies will normally be 
     accommodated. Id. Decisions on the transfer of property to 
     other Federal Agencies shall be made by the Military 
     Department concerned in consultation with the local 
     redevelopment authority. Id.

                            II. Limitations

       The DoD's authority to transfer excess or surplus property 
     to other Federal agencies may, however, be limited by the 
     Act's provision authorizing the DoD to transfer real property 
     located at a closed military installation to the local 
     ``redevelopment authority'' organized to ameliorate the 
     negative economic impacts of the base closure. 10 U.S.C. 
     Sec. 2687 note Sec. 204(a)(4)(A). In addition, the 
     transfer must be without consideration ``in the case of 
     any installation located

[[Page E2470]]

     in a rural area whose closure under this title will have a 
     substantial adverse impact (as determined by the 
     Secretary) on the economy in the communities in the 
     vicinity of the installation and on the prospect for the 
     economic recovery of such communities from such closure.'' 
     Id., at Sec. 204(a)(4)(B)(ii)(A). This may hamper any 
     effort to transfer surplus military property to an agency 
     able to exchange it for Headwaters.
       A potentially greater limitation is a rider bill (H.R. 
     1265) introduced by Congressman Rohrabacher (R-CA) to amend 
     the surplus property disposal provisions of the Defense 
     Authorization Amendments and Base Closure Realignment Act. 
     The bill would prohibit DoD from transferring surplus 
     military property to other Federal agencies unless the agency 
     agrees not to use the property in any property exchange 
     transaction. The bill is currently pending before the 
     National Security Committee, and NHI will continue to track 
     its progress.

 iii. Return of lands transferred ``temporarily'' to the Department of 
               Defense by the Department of the Interior

       Unrelated to DOD's general authority to dispose of surplus 
     military property, a further section of this regulation 
     provides that any lands that have been transferred from the 
     Department of the Interior to a Military Department for the 
     latter's temporary use ``are to be returned to the Secretary 
     of the Interior'' if they are still suitable for the programs 
     of the Secretary of the Interior. 32 C.F.R. 
     Sec. 91.7(a)(9)(i). The Military Department concerned will 
     notify the Secretary of Interior, normally through the Bureau 
     of Land Management (BLM), when withdrawn public domain lands 
     are included within an installation to be closed. 32 C.F.R. 
     Sec. 91.7(a)(9)(ii). BLM will then screen these lands within 
     the Department of Interior to determine if these lands are 
     suitable for return to the Department of Interior. 32 C.F.R. 
     Sec. 91.7(a)(9)(iii). Thus, it should be ascertained whether 
     BLM has transferred any land in California to DoD on a 
     temporary basis. If so, the decision to return the property 
     to BLM will be nondiscretionary, thus eliminating the need to 
     persuade DoD to dispose of the property in a particular 
     manner. After BLM retakes control of the property, it would 
     be a question of orchestrating a land-exchange under FLPMA 
     (see section E., infra.) Accordingly, NHI will attempt to 
     identify military property in California that is owned by the 
     Secretary of the Interior.

D. Disposal of surplus Federal and military property to state fish and 
 wildlife agencies for wildlife conservation purposes under 16 U.S.C. 
                               Sec. 667b

       Enacted in 1948, 16 U.S.C. Sec. 667b, authorizes GSA to 
     dispose of surplus Federal property, both military and non-
     military, by transferring it to a state agency for wildlife 
     conservation purposes. Specifically, the statute provides 
     that upon request, surplus real property under the 
     jurisdiction of a Federal agency which, in the 
     determination of GSA, may be utilized for wildlife 
     conservation purposes in the state where the property 
     lies, may be transferred to the state's fish and wildlife 
     agency. This differs significantly from the program 
     provided by the Lands to Parks Program, in that such land 
     may be transferred only to a State fish and wildlife 
     agency such as the California Department of Fish and Game, 
     and not to a county or municipality. Furthermore, the 
     property may be utilized only for wildlife conservation 
     purposes and not for parks or recreation purposes.
       The Defense Authorization Amendments and Base Closure and 
     Realignment Act authorizes GSA to delegate to DoD, in 
     addition to the authority to dispose of surplus property 
     under the Lands to Parks Program, ``the authority of [GSA] to 
     determine the availability of excess or surplus real property 
     for wildlife conservation purposes in accordance with [16 
     U.S.C. Sec. 667b].'' 10 U.S.C. Sec. 2687 note Section 
     7905(b)(1)(B).
       The military departments are authorized to convey property 
     that can be utilized for wildlife conservation purposes to 
     the state fish and wildlife agency without reimbursement. 32 
     C.F.R. Sec. 644,439(a). If property is considered by the 
     District Engineer to valuable for wildlife conservation 
     purposes, or if interest has been shown in acquiring the 
     property for that purpose, notice of availability should be 
     given to the agency administering state wildlife resources 
     and to the Federal Fish and Wildlife Service if the property 
     has particular value in carrying out the national migratory 
     bird program. 32 C.F.R. Sec. 644.429(b). Any state desiring 
     to make application for property for wildlife conservation 
     will be furnished copies of Application For Real property For 
     the Conservation of Wildlife with accompanying instructions 
     for preparation. In evaluating the application, the 
     responsible District Engineer will request review of the 
     application by the Regional Office of the Fish and Wildlife 
     Service, Department of the Interior, and will obtain that 
     Service's recommendation as to the value of the property for 
     wildlife conservation purposes. 32 C.F.R. Sec. 644.429(c)

                   E. BLM Land Exchanges under FLPMA

       The Federal Land Policy and Management Act of 1976 (FLPMA) 
     as amended by the Federal Land Exchange Facilitation Act 
     (FLEFA), 43 U.S.C. Sec. 1701 et seq., authorizes the 
     Secretary of the Interior to exchange federally-held public 
     lands for non-federal lands if the Secretary of the interior 
     determines that the public interest would best be served by 
     the exchange. 43 U.S.C. Sec. 1716(a). In making this 
     determination, the Secretary is required to consider Federal, 
     state and local needs for ``lands for the economy, 
     community expansion, recreation, food, minerals, and fish 
     and wildlife.'' Id. The Bureau of Land Management (BLM) 
     exercises the Secretary of the Interior's authority under 
     the land exchange provisions of FLPMA. 43 C.F.R. 
     Sec. 2200.0-4.

  i. The ``equal value'' requirement and ``assembled land exchanges''

       FLPMA requires that any lands exchanged under the Act be of 
     equal value, or if they are not equal, that the values be 
     equalized by payment of money to the grantor or BLM as 
     circumstances require. 43 U.S.C. Sec. 1716(b). This 
     equalization requirement may be waived, however, if BLM and 
     the other party agree to the waiver, and BLM determines that 
     the exchange will be expedited and that the public interest 
     will be better served thereby. BLM may not waive cash 
     equalization payments where the amount is more than 3% of the 
     value of the federal lands being exchanged, or $15,000, 
     whichever is less. Id.
       If the non-Federal land sought to be acquired is worth 
     substantially more than any single parcel of Federal land 
     within the state (or vice versa), the parties may enter into 
     an ``assembled land exchange.'' An assembled land exchange is 
     an agreement under which the parties agree to the 
     consolidation of multiple parcels of land for purposes of one 
     or more exchange transactions. 43 C.F.R. Sec. 2200.0-5(f); 
     Sec. 2201.1-1. Thus, several parcels of Federal land may be 
     exchanged for a single, valuable parcel of non-Federal land.
       FLPMA also provides that if the non-federal land acquired 
     by exchange is situated within the boundaries of an existing 
     National Park, Forest, Wildlife Refuge System, Wild and 
     Scenic Rivers System, Trails System, or Wilderness 
     preservation system, the land will immediately become part of 
     that unit without further action by the Secretary. 40 U.S.C. 
     1716(c).

                             ii. Procedure

       Land exchanges under FLPMA are administered through 
     guidelines contained in Title 43, Part 2200 of the C.F.R. At 
     the outset, it is important to note that FLPMA land exchanges 
     are entirely within BLM's discretion, and BLM is free to 
     terminate an exchange proposal at any time unless the parties 
     have entered into a legally-binding agreement. 43 C.F.R. 
     2200.0-6(a). Also, a land exchange may take place only after 
     the appropriate BLM officer determines that it will ``well 
     serve'' the public interest. 43 C.F.R. 2200.0-6(b). In making 
     this determination, BLM must give full consideration to ``the 
     opportunity to achieve better management of Federal lands, to 
     meet the needs of State and local residents and their 
     economies, and to secure important objectives, including but 
     not limited to: protection of fish and wildlife habitats, 
     cultural resources, watersheds, wilderness and aesthetic 
     values.'' BLM must also find that the resource values and the 
     public objectives that the Federal lands or interests to 
     be conveyed may serve if retained are not more than the 
     resource values of the non-Federal lands and the public 
     objectives they could serve if acquired. 43 C.F.R. 
     Sec. 2200.0-6(b)(1). Once BLM accepts title to the non-
     Federal lands, the lands become and remain public lands, 
     subject to BLM management. 43 U.S.C. Sec. 1715(c).
       Exchanges may be proposed by BLM itself, or by ``any 
     person, State, or local government.'' 43 C.F.R. Sec. 2201.1. 
     Initial exchange proposals are directed to the authorized 
     officer responsible for the management of Federal lands 
     involved in an exchange. Generally, the parties to an 
     exchange bear their own costs. 43 C.F.R. Sec. 2201.1-3. 
     However, if the BLM finds it to be in the public interest, it 
     may agree to bear the other party's costs. Id. A flow-chart 
     describing the entire BLM land exchange process appears as 
     Attachment A to this memorandum.

                    iii. Three-party land exchanges

       BLM regularly organizes what are called ``three-party land 
     exchanges'' of Federal for non-Federal lands. Under a three-
     party exchange, the non-Federal land in question is sold 
     initially to a third-party, usually a private land trust, for 
     cash. The third-party then holds and manages the land pending 
     BLM's identification of the parcel or parcels of Federal land 
     to be exchanged, a process that can take years. Once the 
     Federal lands are selected, BLM conveys them to the third-
     party in exchange for title to the non-Federal lands it 
     holds. The third-party then may sell the lands conveyed to it 
     to recover the cost of the initial purchase.
       A narrative description of a three-party exchange upheld in 
     the past appears as Attachment C to this memorandum.

                            iv. Restrictions

       Restrictions on BLM land exchanges under FLPMA include: (1) 
     a requirement that the Federal and non-Federal lands 
     exchanged lie within the same state (43 U.S.C. Sec. 1716(b); 
     43 C.F.R. Sec. 2200.0-6(d)); (2) a requirement that an 
     environmental analysis under NEPA be prepared after an 
     agreement to initiate an exchange is signed (43 C.F.R. 
     Sec. 2200.0-6(h)); and (3) a requirement of conformity with 
     existing land use plans (43 C.F.R. Sec. 2200.0-g(g)).

           F. U.S. Forest Service Land Exchanges Under FLPMA

       In addition to authorizing BLM to enter into land 
     exchanges, FLPMA (43 U.S.C. Sec. 1701 et seq.) authorizes the 
     Secretary of Agriculture to exchange lands within the 
     National Forest System (NFS) for non-Federal

[[Page E2471]]

     lands upon a determination that the public interest will be 
     well served thereby. 43 U.S.C. Sec. 1716(a). The substantive 
     provisions of FLPMA, including authorizations and limitations 
     on authority, apply equally and identically to the Secretary 
     of the Interior for public lands and the Secretary of 
     Agriculture for National Forest lands. Thus, the analysis 
     of FLPMA contained in Section E., supra, of this 
     memorandum may be incorporated here by reference.
       The Forest Service regulations governing exchanges appear 
     in Title 36, Part 254 of the C.F.R. These regulations mirror 
     the correlative regulations governing BLM land exchanges. The 
     discussion of the latter regulations in Section E. applies 
     equally and may also be incorporated here by reference. One 
     key difference in the exchange procedure, however, is that 
     NFS land exchanges may involve, in additional to outright 
     land exchanges, ``land-for-timber'' (non-Federal land 
     exchanged for the rights to Federal timber), or ``tripartite 
     land-for-timber'' (non-Federal land exchanged for the rights 
     to Federal timber cut by a third party on behalf of the 
     parties to the exchange). 36 C.F.R. Sec. 254.1. Initial 
     Forest Service land exchange proposals are directed to the 
     Director of the applicable unit of the NFS. 36 C.F.R. 
     Sec. 254.4.

               G. The Recreation and Public Purposes Act

       The Recreation and Public Purposes Act (RPPA) (43 U.S.C. 
     Sec. 868 et seq.) authorizes the Secretary of the Interior to 
     dispose of public lands to a State, county, municipality, or 
     non-profit organization for any recreational or public 
     purposes. Before the land may be disposed, however, it must 
     be shown to satisfaction of the Secretary that it is to be 
     used for a definitely proposed project, that the land is not 
     of national significance, nor more than is reasonably 
     necessary for its proposed use. 43 U.S.C. Sec. 868(a). No 
     more than 25,600 acres may be conveyed for recreational 
     purposes in any one State per calendar year. 43 U.S.C. 
     Sec. 868(b)(i)(C).
       Conveyances of lands for recreational purposes shall be 
     made without monetary consideration, while conveyances for 
     any other purpose shall be made at a price fixed by the 
     Secretary of the Interior through appraisal or otherwise, 
     after taking into consideration the purpose for which the 
     lands are to be used. 43 C.F.R. Sec. 869-1(a). The Secretary 
     may not convey lands reserved for National Parks, Forests, 
     Wildlife Refuges, or lands acquired for specific purposes. 43 
     C.F.R. Sec. 2741.1(a). Potential applicants should contact 
     the appropriate District Office of BLM ``well in advance of 
     the anticipated submission of an application.'' 43 U.S.C. 
     Sec. 2741.3(a). Dependent on the magnitude and/or public 
     interest associated with the proposed use, various 
     investigations, studies, analyses, public meetings and 
     negotiations may be required of the applicant prior to the 
     submission of the application. 43 U.S.C. Sec. 2741.3(c).
       ``Omitted lands'' and unsurveyed islands may be conveyed to 
     States and their local political subdivisions under the Act 
     as well. 43 C.F.R. Sec. 2742.1


                            III. Conclusion

       As stated in the introduction, it is difficult to ascertain 
     which of these programs, if any, would be best suited to the 
     type of exchange the Rose Foundation seeks to orchestrate. 
     Given the highly discretionary nature of all the programs, 
     ``scoping'' meetings with the necessary agency personnel will 
     be necessary to ascertain the degree of interest at the 
     various decisionmaking levels of both the agency disposing of 
     property, the agency initially receiving the property, and/or 
     the FDIC. Before such meetings take place, we do not 
     recommended that one or more programs be pursued to the 
     exclusion of all others.
       Based on legal analysis alone, however, the provision of 
     the Military Base Closure and Realignment Act requiring the 
     return of lands held by the Department of Defense ``on loan'' 
     from the Department of the Interior may be a favorable option 
     in light of the non-discretionary nature of the initial 
     transfer. Under this provision, land must  be transferred to 
     the Department of the Interior, thus eliminating the need to 
     convince the Defense Department to dispose of the property, 
     in its discretion, in a particular manner in its discretion. 
     As stated above, NHI will attempt to identify military 
     property in California that is owned by the Department of the 
     Interior.

                                  ____
                                  

                               Record 12


                               MEMORANDUM

     To: Jack D. Smith, Deputy General Counsel
     From: Jeffrey Ross Williams, Counsel, PLS
     Date: 15 June 1995
     Subj: United Savings Association of Texas, In FDIC 
         Receivership, Investigation of Charles Hurwitz and 
         Others.
       We received a letter (from among the hundreds we received 
     in the last 60 days) that discusses the ``debt-for-nature'' 
     transaction that various environmental groups have been 
     advocating to resolve the claims involving Hurwitz and USAT. 
     It contains a reference to the Oklahoma City bombing and a 
     call to ``defuse this situation.'' I want to bring it to your 
     attention.
       As you know, the above-referenced investigation has 
     resulted in attracting the attention of organizations and 
     individuals that have interests in environmental 
     preservation. This has arisen as a result of Charles 
     Hurwitz's acquisition (through affiliates) of Pacific Lumber, 
     a logging company in Humboldt County, California, that owns 
     the last stands of old growth, virgin redwoods. It has been 
     widely reported that the company has been harvesting the 
     virgin redwoods in a desperate attempt to raise cash to pay 
     its and its holding company's, Maxxam, Inc.'s, substantial 
     debt obligations.
       The environmentalists' issues are centered on preserving 
     the old growth redwoods through a mechanism of persuading 
     Hurwitz to settle the government's claims involving losses 
     sustained on the USAT failure by, in part, transferring the 
     redwood stands to the FDIC or other federal agency 
     responsible for managing such forest lands. FDIC has received 
     thousands of letters urging FDIC to pursue such a 
     transaction.
       The environmental movement, like many others, is not 
     homogeneous and contains extreme elements that have resorted 
     to civil disobedience and even criminal conduct to further 
     their goals. As a result of the recent tragedy in Oklahoma 
     City, everyone appears more sensitive to the possibility that 
     people can and do resort to desperate, depraved criminal 
     acts. Accordingly, we take any references to such conduct, 
     even ones that appear innocent, more seriously.
       Among the hundreds of letters we received last month is one 
     that contains a reference to the Oklahoma City bombing that I 
     want to bring to your attention. The author does not make any 
     directly threatening statements but appears, at least to me, 
     to have personal knowledge of the deep passions and divisions 
     that various environmental activists harbor on these 
     preservation issues. This is particularly evident when he 
     states, ``Do us all a favor and save the forest and defuse 
     this situation.'' The author's hometown of Sebastopol, CA., 
     happens to be a hot-bed of environmental activism and 
     conflict since the 1960s.
       In the event you believe this letter deserves greater 
     scrutiny, it should be referred to the local office of the 
     Federal Bureau of Investigation. I would be pleased to 
     contact them if you deem it appropriate. I can always be 
     reached at 736-0648 to discuss this matter further.

     June 15, 1995--Told Wms to advise FBI and Rob Russell.

                                  ____
                                  

                               Record 13

                          The Rose Foundation


                   For Communities & The Environment

       Please deliver, 43 pages including cover, to Steve Lambert
       Please call (510) 658-0702 to report any problems in 
     transmission

     To: Steve Lambert, Hopkins & Sutter
     From: Jill Rainer, Rose Foundation for Communities and the 
         Environment
     Steve:
       Thank you for the opportunity to share our analysis of the 
     case for imposition of a constructive trust on the assets of 
     Pacific Lumber in connection with the FDIC's claims against 
     MAXXAM, Inc. We hope the following memorandum will provide a 
     useful starting point for a full and frank discussion of 
     those issues presented.
       Most of the lawyers who participated in the preparation of 
     the memo will be available for a phone conference at 1:00 
     p.m., Pacific time, on Tuesday, the 27th. These include:

     Kirk Boyd and Dave Williams, Boyd, Huffman and Williams, 
         (415) 981-5500.
     Tom Lippe (counsel for the Environmental Public Information 
         Center), (415) 495-2800.
     Peter Camp, of Camp, Von Kallenbach (206) 689-5613.
     I can be reached at the Rose Foundation office, at (510) 658-
         0702.
     Rick DeStefano, who has recently joined the team, is unable 
         to attend.

       We will be looking forward to talking with you and your 
     colleagues.


                              INTRODUCTION

       The MAXXAM Corporation, through its wholly owned 
     subsidiaries Pacific Lumber Company (Del), Scotia Pacific, 
     and the Salmon Creek Corporation (Collectively ``Pacific 
     Lumber'', or ``PL'', in this memorandum) currently controls 
     and logs an area known as Headwaters Forest in Humboldt 
     County, California. Headwaters Forest is a collection of 
     forest lands that contain the last major unprotected stands 
     of old growth redwood in the world. These stands of ancient 
     trees, many of which are between 1000 and 2000 years old, are 
     remnants of the great virgin redwood forest that once 
     extended more than 500 miles from its southern tip to its 
     northern boundary, blanketing the western coastal range from 
     Big Sur to southern Oregon.
       The Rose Foundation contends that MAXXAM's control of 
     Pacific Lumber and the Headwaters Forest properties is 
     unlawful and was wrongfully obtained, as a result of a 
     prohibited transaction which breached of MAXXAM's fiduciary 
     duty as a controlling shareholder of the thrift, United 
     Savings Association of Texas (USAT), and which led to USAT's 
     1988 failure and bailout by the Federal Deposit Insurance 
     Corporation (FDIC) which cost taxpayers more than $1.3 
     billion. We believe that the FDIC, as the party injured by 
     the alleged breaches of fiduciary duty, has the authority to 
     seek imposition of a constructive trust on the proceeds of 
     the prohibited transaction and to compel MAXXAM's 
     disgorgement of Pacific Lumber and all its assets.
       The FDIC must act quickly to file an action against MAXXAM 
     seeking disgorgement. While the statute of limitations has 
     been extended by agreement in this matter, we respectfully 
     point out that the policies behind the statute of limitations

[[Page E2472]]

     still hold true: recollections are fading; evidence is being 
     lost; witnesses may soon become unavailable. Of particular 
     concern in this matter is the age of the Texas State bank-
     examiner who played the central role in reviewing or 
     supervising the review of USAT's records; it is our 
     understanding that he is now more than seventy years old.
       In addition, the FDIC must act quickly to protect the value 
     of the res during litigation by positioning for a temporary 
     restraining order and preliminary injunction to prevent any 
     further irreparable harm such as has occurred as a result of 
     recent intensive logging operations. These operations began 
     September 15th and are, in all probability, continuing. The 
     recent logging involves clearcutting residual old-growth in 
     or near environmentally sensitive areas within the 44,000 
     acre area which is currently the subject of pending 
     acquisition legislation in Congress (HR 2866, which passed in 
     the House of Representatives September 21, 1994 and is 
     currently under consideration in the Senate). We believe that 
     these practices constitute the deliberate destruction and 
     dissipation of irreplaceable assets.
       The trees that are currently falling represent an 
     irreplaceable resource. From a purely economic standpoint, 
     the old-growth trees are an order of magnitude more valuable 
     than second growth; one 1000 year old tree is worth more than 
     $100,000 on the timber market. Top grade ``clear redwood'', 
     which comes from the densest heartwood of old growth trees, 
     has long been prized for its durability as well as its 
     beauty. Such wood (when kiln dried) costs about $3.49 per 
     board foot at the local lumber yard. Lower grades of redwood 
     fetch from $.89 per board foot ($2.19 when kiln dried), for 
     wood that is all ``mirch'' or sapwood, to $1.19 a board foot 
     for ``construction heart'' grade, wood that is mostly 
     heartwood, with some defects. A redwood tree must grow for 
     more than 500 hundred years before it can be milled to 
     produce substantial quantities of prime grade clear redwood.
       From an environmental standpoint, the trees of Headwaters 
     Forest represent an irreplaceable resource of another kind. 
     The majestic ancient groves of Headwaters Forest represent 
     one of the three remaining California nesting areas for the 
     endangered sea-bird, the marbled murrelet, which requires 
     closed canopy, virgin groves of old-growth trees for its 
     nesting grounds. Headwaters is also home to spotted owl 
     (listed as endangered by the State of California and as 
     threatened by the Federal Fish and Wildlife Service), and 
     home to the southern seet salamander (under consideration for 
     listing by the Federal Fish & Wildlife Service as threatened; 
     recommended for state listing as ``threatened'' by California 
     Department of Fish & Game). Up to 10% of California's wild 
     Coho Salmon, (which are under consideration for a Federal 
     listing as threatened by the National Marine Fishery Service) 
     spawn in the rivers that give Headwaters its name. The 
     adjacent residual old growth provides buffer zones needed to 
     keep the ancient groves intact and protect the vulnerable 
     species. The 44,000 acre acquisition area, which ties 
     isolated ancient groves together with each other and with 
     other protected areas, incorporates significant residual old-
     growth as well as second growth and represents the area's 
     best chance for overall habitat recovery.

                      The Scope of This Memorandum

       This memorandum will summarize law and publicly available 
     evidence supporting a imposition of a constructive trust and 
     disgorgement of Pacific Lumber. It will also summarize the 
     facts and law supporting a petition for a temporary 
     restraining order severely limiting logging during 
     litigation. Most of the facts and conclusions asserted in 
     this memorandum must be known to and beyond contradiction by 
     the FDIC, since the FDIC alleged essentially the same facts 
     in the compliant filed in FDIC v. Milken.
       There are many issues that are beyond the scope of this 
     memorandum. It does not reach any issues related to the 
     eventual disposition of Pacific Lumber's assets after 
     disgorgement. While the writers believe legal mechanisms 
     exist for transferring property acquired by the FDIC to other 
     government agencies without specific authorizing legislation, 
     the writers currently assume that the pending acquisition 
     bill will create a willing buyer for many of these assets, 
     i.e., the US Forest Service.
       This memo does not reach any potential choice of laws 
     issues; where potentially applicable, the writers will 
     discuss both Texas and California law. It does not reach any 
     specific issues of banking law, thrift regulation, or Federal 
     securities law. Nor does it reach any issues related to the 
     FDIC's responsibilities and obligations to the public to 
     recover funds lost in the S&L bailout or to protect public 
     resources.
       This memo assumes that the location of the disposal 
     property gives rise to jurisdiction in a Federal Court in the 
     Northern District of California. The writers have not made 
     any attempt to compare the Ninth Circuit and Fifth Circuit 
     case law on relevant issues or to otherwise evaluate the 
     desirability of one forum over another. However, barring any 
     compelling reason to litigate outside of California, we 
     believe that the public interest would be served best by 
     bringing the action within the state most affected by its 
     outcome.


                            FACTUAL SUMMARY

       The factual basis for our argument can be stated quite 
     simply:
       (1) MAXXAM controlled and dominated United Savings 
     Association of Texas (USAT), functioning, in actuality, as 
     its controlling shareholder.
       (2) Without providing full disclosure to USAT's 
     disinterested directors, MAXXAM, and MAXXAM's CEO, Charles 
     Hurwitz, used MAXXAM's position of trust and confidence as a 
     controlling shareholder, to enter into a prohibited deal with 
     Michael Milken and the firm of Drexel, Burnham, Lambert.
       (3) Under the terms of that deal, or quid pro quo, MAXXAM 
     caused USAT to purchase large amounts of Drexel under-written 
     securities in return for Drexel arranging the financing for 
     MAXXAM's takeover of Pacific Lumber.
       (4) The quid pro quo worked very much to the benefit of 
     MAXXAM and to the detriment of USAT in that MAXXAM acquired a 
     valuable, asset-rich company, while USAT was left with over a 
     million dollars of essentially worthless securities.
       (5) The preponderance of these worthless Drexel securities 
     in USAT's portfolio precipitated, or at least contributed in 
     very significant part, to USAT's failure, and dictated the 
     size of the FDIC's ultimate $1.3 + billion contribution to 
     the S&L bailout.
       (6) Drexel's role in the financing of the PL acquisition 
     was critical to the takeover's success, because MAXXAM's 
     strategy required cash for a 100% tender offer and MAXXAM 
     could not get financing elsewhere.

               A brief history of the MAXXAM Corporation

       Although the MAXXAM Incorportated (MAXXAM) is publicly 
     held, its fortunes and its business practices are almost 
     inextricably intertwined with those of its controlling 
     shareholder, President, CEO, and Chairman of the Board, 
     Charles Hurwitz. In 1985, Charles Hurwitz owned 3% of the 
     stock of the MAXXAM directly, and controlled 40.6% through 
     related entities and through the ownership of family members, 
     Hurwitz has served continuously on the MAXXAM Group's board 
     since the MAXXAM Group was created as the successor to 
     Simplicity Pattern Corporation in June of 1984.
       MAXXAM Group, Inc. (MAXXAM Group of MGI) was created from 
     Simplicity Pattern Corp (SPC) in June of 1984. MAXXAM Group 
     began its corporate existence as a subsidiary of MCO Holdings 
     (MCOII), (another Hurwitz controlled corporation, which 
     acquired the Simplicity Pattern Corporation in 1982.
       MAXXAM Group was formed as the result of a complicated set 
     of interrelated transactions. Simplicity Pattern Corporation 
     (SPC) first spun off its actual pattern operations as a 
     production subsidiary, Simplicity Pattern Inc. (SPI). The 
     parent corporation then sold the production subsidiary to 
     another corporation known as the Triton Group Inc. (TGI) 
     which simultaneously merged with yet another company, the 
     Republic Corporation.
       In the course of the the deal, Simplicity Pattern's parent 
     corporation changed its name to MAXXAM Group, Inc. and 
     renamed its real estate subsidiary, Twin Fair, which became 
     MAXXAM Properties Inc (MPI). MPI simultaneously merged with 
     Maxxus, another Hurwitz controlled company, Federated 
     Development Company (FDC).
       Throughout much of the period we will be discussing, MAXXAM 
     continued to be a subsidiary of MCOH. In 1985, MCOII owned 
     37.2% of MAXXAM Group Inc. FDC (which, taken together with 
     Hurwitz and his group, maintained 65.2% voting control of 
     MCOH) owned an additional 4.5% of MAXXAM directly. The 
     remaining MAXXAM stock was largely held by institutional 
     investors.
       There was also significant overlap of leadership among 
     MCOH, MAXXAM and FDC. All five of FDIC's trustees and five of 
     MCOH's seven directors (four of whom were were common to both 
     MCOH and FDC sat on MAXXAM's ten member board. Charles 
     Hurwitz, George Kozmetsky, Barry Munitz and Ezra Levin served 
     on all three boards, and occupied positions of real 
     leadership within the three organizations.
       On September 24, 1986 a MAXXAM Group/MCOH merger was 
     announced, which was completed in April of 1988, when MCOH 
     emerged as the surviving parent corporation, renamed, 
     however, as MAXXAM Incorporated. Through an exchange of stock 
     in the two companies, MAXXAM Group, Inc. became a wholly 
     owned subsidiary of MAXXAM Inc. In other words, MAXXAM 
     succeeded to all of MCOH's interests and assets and to all 
     the interests of MAXXAM Group, Inc., as well. It is entirely 
     possible that, as is common practice, this merger was 
     actually planned long before it was announced; this 
     possibility should be explored in discovery.
       In the years immediately prior to its renaming as MAXXAM, 
     MCOH had served as the primary acquisition vehicle for the 
     various Hurwitz related corporations; once acquired, 
     Simplicity and then MAXXAM Group, joined in performing that 
     function for the Hurwitz financial empire. MAXXAM played a 
     significant role in the arguably coordinated acquisition 
     campaigns and alleged green-mail activities of the various 
     related companies in Hurwitz financial empire.

 Charles Hurwitz and MAXXAM's Control of United Savings Association of 
                                 Texas

       During all of the relevant times, MAXXAM's CBO Charles 
     Hurwitz and MAXXAM or MCOH exerted actual control over the 
     affairs of United Savings Association of Texas. That control 
     was exerted through and demonstrated by several mechanisms: 
     1) ownership and control of a substantial bloc of voting 
     stock in the holding company that was the S&L's sole owner, 
     coupled

[[Page E2473]]

     with ownership of options to acquire more voting stock and 
     ownership of preferred stock which, in time, would have 
     converted to voting stock had Hurwitz considered conversion 
     desirable, 2) control of the boards of directors of the 
     holding company and the S&L, 3) control of the executive 
     committee of the S&L, 4) control of the S&L investment 
     department and investment committee.

                            Stock Ownership

       United Savings Association of Texas (USAT), a Texas state 
     chartered savings and loan, was a wholly owned subsidiary of 
     the savings and loan holding company, United Financial Group 
     (UFG). According to the complaint in FDIC v. Milken, ``In 
     mid-1983, Hurwitz, through two companies he controlled, 
     Federated Development Co. and MCO Holdings, Inc., acquired 
     approximately 23% of UPG.'' In other words, when MAXXAM Group 
     was created in 1984, its parent company, MCOH, already had a 
     substantial interest in UFG, to which MAXXAM succeeded when 
     MAXXAM Group and MCOH merged. In United Financial Group's 
     198810K report to the SEC, MAXXAM is described as owning, 
     together with an affiliated entity (Federated Development 
     Co.), 23.3% of UFG's common stock.
       Drexel held another major bloc, between 7% and 9.7% of UFG 
     stock. Again from the FDIC v. Milken complaint, ``Drexel and 
     Hurwitz were the largest shareholders of UFG during the 
     entire period . . . together controlling more than 30% of 
     UFG's outstanding stock from 1984 until 1988, when USAT 
     failed.'' Since MAXXAM (through Hurwitz) and Drexel (through 
     Milken) conspired to control the S&L for their own benefit 
     and to the detriment of the USAT and ultimately the FDIC, for 
     our purposes Drexel's stock ownership contributed to MAXXAM's 
     contol as well, and the whole should be attributed to MAXXAM.
       In addition to the outright ownership of common stock, 
     MAXXAM's predecessor corporation and affiliates held various 
     options and other convertible instruments that increased 
     their ability to control UFG and USAT. In June, 1984, UFG-
     USAT issued Series C Convertible Preferred Stock. FDC-MCOH 
     bought 97.5% of the issue. The series C was replaced (prior 
     to its conversion date) by series D in June 1987 which was 
     replaced (prior to its conversion date) by Series E, in June 
     of 1988. The tactic of not actually exercising conversion 
     rights but continuing to maintain those rights, was 
     apparently engaged in at the direction of MAXXAM's 
     Chairman of the Board, Charles Hurwitz, in order to 
     prevent activation of net worth guarantees which would 
     have been required by the Federal Home Loan Bank Board 
     (FHLBB) had the percentage of voting stock attributable to 
     MAXXAM's predecessors come to exceed 25% of the 
     outstanding voting stock. In December 1985, MCOH bought a 
     put-call option for 300,000 shares of UFG-USAT from 
     Drexel, further increasing MAXXAM's predecessor's ability 
     to exercise voting control if the need should arise.
       At the end of 1985, Drexel's and MAXXAM's interests in USAT 
     were:

------------------------------------------------------------------------
                                                      Total/    Total/
                                             %Common  option  conversion
------------------------------------------------------------------------
FDC-MCOH...................................   23.3     26.97     41.97
Drexel.....................................    9.67     6.0       6.0
                                                              s A respected ``presence'' and proven track record 
     that will carry weight with the proposed defendants and the 
     court,
        Aggressive, clever approach to litigation, with 
     the breadth of resources to handle potentially unique 
     settlement options, perhaps requiring coordination with 
     Congress,
        Familiarity with not only basic legal issues, but 
     exotic securities products and accounting issues/quick study 
     with ability to come up to speed under significant time 
     limitations, including dealing with experts in this highly 
     specialized fielf,
        Local Texas presence; and
        Compliance with Minority/Women Owned Firm 
     Guidelines.
       Although we found Reid & Priest to be a highly competent 
     firm, with insightful comments concerning the proposed claims 
     and potential strategies, the firm eliminated itself from 
     consideration based on its stated inability to commit the 
     needed resources to a matter of this magnitude at this time. 
     Our observations of the pros and cons of the remaining firms 
     we interviewed are as follows:

               Cravath Swaine & Moore and Duker & Barrett

       While we were interested in hiring Cravath Swaine & Moore, 
     and more particularly David Boies of that firm as lead 
     counsel, the proposal made by Mr. Boies and his firm was that 
     we hire both Cravath Swaine & Moore and Duker & Barrett. The 
     Duker & Barrett firm largely consists of former Cravath 
     Swaine & Moore lawyers with whom Mr. Boies has worked while 
     at Cravath and thereafter. Staffing for the case would 
     include David Boies as lead counsel, Bill Duker and Duker & 
     Barrett lawyers and paralegals and lawyers and paralegals 
     from Cravath Swaine & Moore as needed, all for a single fee 
     arrangement.
     Pros:
        David Boies, a nationally recognized and highly 
     regarded trial lawyer, who has personally committed to handle 
     all major aspects of the litigation on behalf of the FDIC;
        The firm, based both on Mr. Boies's reputation and 
     the firm's prior participation in the Drexel case on behalf 
     of the FDIC, would likely have an immediate impact on the 
     litigation and perhaps increase the chances of early 
     settlement,
        The firm is widely regarded as aggressive, bright, 
     and creative and has a demonstrated ability to cover all 
     waterfronts in large, highly publicized litigations;
        The firm has broad experience with securities/
     accounting issues, including having secured highly favorable 
     results on behalf of the FDIC and RTC in the Drexel 
     Litigation;
        The firm has had experience with FDIC issues, 
     procedures and personnel, although not directly with FDIC 
     professional liability staff;
        Mr. Boies knows and has a good relationship with a 
     key player, counsel for Hurwitz, Richard Keeton, for whom he 
     served as successor counsel in the Texaco Litigation; and
        The firm, and Mr. Boies in particular, are 
     familiar withi Mr. Hurwitz and certain of his trading 
     activities through the Drexel Litigation.
     Cons:
        Cravath's long-standing and substantial client, 
     Salomon Brothers, although not a target of the FDIC's 
     proposed suit, is at least a witness in such a suit and could 
     be named as a third party by defendants, raising certain 
     potential conflict issues. We are in the process of 
     conducting, but have not yet completed, an evaluation of 
     other potential conflicts as required by the Statement of 
     Policies Concerning Outside Counsel Conflicts of Interest;
        No Texas presence--would have to retain local 
     counsel, probably a Texas MWOLF firm inasmuch as both 
     Cravath, Swaine & Moore and Duker & Barrett lack minority 
     participation from within;
        Certain logistical, management, and coordination 
     issues are raised by the participation of at least three 
     firms, two of which are in New York; and
        The firm's high hourly rates and the previous 
     negative publicity concerning those rates in the Drexel 
     Litigation.

                            Hopkins & Sutter

       Hopkins & Sutter is a large national, Chicago based, firm 
     that has handled vast amounts of FSLIC, and subsequently FDIC 
     and RTC, litigation.
     Pros:
        The firm has broad experience with FDIC issues, 
     organization and personnel, particularly with respect to 
     professional liability claims and staff. The firm was outside 
     counsel in the Silverado, FirstSouth, F.A., Gibraltar Savings 
     Association and Texas Bank & Trust Company cases, among 
     others;
        The ``core'' partners who would staff the case--
     particularly John Rogers--are sharp and very familiar with 
     the issues. Mr. Rogers, a highly regarded trial lawyer, was 
     actively involved in MBS issues on behalf of the FHLBB during 
     the time frame relevant to USAT's activities, as was Hopkins 
     & Sutter partner Michael Duhl, who has already undertaken an 
     analysis of certain tax issues related to UFG on behalf of 
     TAOSS;
        The firm has a Dallas office, is willing to open a 
     Houston office, and is familiar with local practice;
        Past cases have left the Professional Liability 
     Section with an excellent working relationship with the firm 
     on all levels;
        The firm has offered concessions on billing for 
     travel and expenses and also will entertain and has proposed 
     an alternative fee arrangement;
        The firm would be able to provide minority 
     participation from within, with partners and/or associates 
     with FDIC, although perhaps not professional liability, 
     experience;
        The firm has a proven record handling high profile 
     litigation on behalf of the Corporation and, drawing on its 
     extensive representation of the lumber industry, will be able 
     to cover all aspects of any potentially unique debt for 
     redwoods settlement arrangements;
        Potential conflicts have been reviewed by the 
     Outside Counsel Conflict Committee and resolved in a manner 
     which would not preclude the firm's participation in this 
     case; and
        Firm partners who would serve on the trial team 
     know the players, having previously litigated against counsel 
     for certain of the defendants, John Villa of Williams & 
     Connelly.
     Cons:
        The firm would not likely bring an immediate, 
     discernible impact upon entry into the case, inasmuch as it 
     is largely perceived as the ``firm of choice'' for the FDIC. 
     The firm is now under the FDIC mandated fee cap and projects 
     that it will remain well under the cap in the future;
        Certain firm members' active participation in MSB 
     issues on behalf of the FHLBB provides special expertise in 
     this area, but at the cost that this history might make it 
     difficult for the firm to bring the independent view 
     necessary to make sound litigation risk assessments; and
        The firm does not have a reputation for the 
     boldness of action or creativity which may enhance FDIC's 
     ability to secure an early recovery in this case.

                                  ____
                                  

                               Record 16

       7/17/95--Phone call from----5 p.m.

[[Page E2482]]

       Alan McReyolds--202-208-6318, Spec. Asst. to Sec. of 
     Interior--Status of our potential claims--how OTS is 
     organized., etc?
       Someone to describe * * * receiving calls our claims and 
     FDIC almost daily from members OTS roles of Congress and 
     private citizens.
       his schedule--Nextweek--vacation;--following week--travel.
       --Would really like to meet this week if at all possible.
       --He has not spoken to Jack Smith.
       --Would like meeting to take place this week if at all 
     possible because of his vacation and travel schedule.
       7/18/95--JOT reaction--1:30 am.
       Talk to Jack Smith and Alice Goodman--
       TUT's reaction--Smith and Goodman should be here with us.

                                  ____
                                  

                               Record 17

     Memorandum To: Board of Directors, Federal Deposit Insurance 
         Corporation.
     From: Jack D. Smith, Deputy General Counsel.
     Stephen N. Graham, Associate Director (Operations).
     Date: July 24, 1995.
     Subject: Status of PLS Investigation, Institution: United 
         States Association of Texas, Houston #1815.
       This memorandum reports on the status of the continuing 
     investigation of the failure of United States Association of 
     Texas (``USAT''), the separate investigation being conducted 
     by the Office of Thrift Supervision (``OTS''), current 
     tolling agreements, settlement negotiations with United 
     Financial Group, Inc., (``UFG'') USAT's first tier holding 
     company, and our decision not to recommend an independent 
     cause of action by the FDIC against the former officers and 
     directors of USAT and controlling person Charles Hurwitz.
     I. Background
       As you know, USAT was placed into receivership on December 
     30, 1988, with assets of $4.6 billion. The estimated loss to 
     the insurance fund is $1.6 billion. After a preliminary 
     investigation into the massive losses at USAT, the FDIC 
     negotiated tolling agreements with UFG, controlling person 
     Charles Hurwitz and nine other former directors and officers 
     of USAT/UFG that were either senior officers or directors 
     that were perceived as having significant responsibility over 
     the real estate and investment functions at the institution.
       In May 1994, after a series of meetings with the potential 
     defendants and the exchange of considerable documents and 
     other information, we presented a draft authority to sue 
     memorandum recommending that we pursue claims against Hurwitz 
     and certain of the former officers and directors for losses 
     in excess of $200 million. The proposed claims involved 
     significant litigation risk, in that the bulk of the loss 
     causing events occurred more than two years prior to the date 
     of receivership, and were therefore subject to dismissal on 
     statute of limitations grounds. In light of the Fifth 
     Circuit's opinion in Dawson, a split of authority in the 
     federal trial courts in Texas on the level of culpability 
     required to toll limitations and the Supreme Court's refusal 
     to consider whether a federal rule should be adopted under 
     which negligence by a majority of the directors would toll 
     the statute of limitations, our strategy was to assert that 
     gross negligence was sufficient to the toll the statute of 
     limitations. After briefings with FDIC deputies and further 
     discussion with the potential defendants, we decided to defer 
     formal FDIC approval of our claims and continue the tolling 
     agreements.
       At about the same time that we deferred formal approval of 
     the FDIC cause of action, we developed a new strategy for 
     pursuing these claims through administrative enforcement 
     proceedings with the OTS. After several meetings with senior 
     staff of the OTS Office of Enforcement, we entered into a 
     formal agreement with the OTS, who began an independent 
     investigation into the activities of various directors and 
     officers of USAT, Charles Hurwitz, UFG, as well as USAT's 
     second tier holding company, Maxxam, Inc., a publically 
     traded company that is significantly controlled by Hurwitz.
     II. Significant Caselaw Developments Have Further Weakened 
         the Viability of an Independent Cause of Action by the 
         FDIC
       Although we have continued to investigate and refine our 
     potential claims during the pendency of the OTS 
     investigation, two significant court decisions and the 
     failure of Congress to address the statute of limitations 
     problems has further weakened the FDIC's prospects for 
     successfully litigating our claims in United States District 
     Court for the Southern District of Texas.
       In the recent decision of RTC v. Acton, the Fifth Circuit 
     held that under Texas law, only self-dealing or fraudulent 
     conduct, and not gross negligence, is sufficient to toll the 
     statute of limitations under the doctrine of adverse 
     domination. As a result of this opinion, we can no longer 
     rely on any argument that gross negligence by a majority of 
     the culpable Board is sufficient to toll the statute of 
     limitations. Moreover, there is very little, if any, 
     evidence of fraud or self-dealing that is likely to 
     survive a motion to dismiss on statute of limitations 
     grounds.
       Even if we could overcome the statute of limitations 
     problems, a recent decision by the Texas Supreme Court 
     announced a new standard of gross negligence that will be 
     very difficult to meet. In Transportation Insurance Company 
     v. Moriel, 1994 WL 246568 (Tex.), the Texas Supreme Court 
     defined gross negligence as constituting two elements: (1) 
     viewed objectively from the standpoint of the actor, the act 
     or omission must involve an extreme degree of risk, 
     considering the probability and magnitude of the potential 
     harm to others, and (2) the actor must have actual, 
     subjective awareness of the risk involved, but nevertheless 
     proceed in conscious indifference to the rights, safety, or 
     welfare of others. This new standard will make it very 
     difficult, if not impossible to prove our claims.
       The cumulative effect of these recent adverse decisions is 
     that there is a very high probability that the FDIC's claims 
     will not survive a motion to dismiss either on statute of 
     limitations grounds or the standard of care. Because there is 
     significantly less than a 50 percent chance that we can avoid 
     dismissal, it is our decision not to recommend suit on the 
     FDIC's proposed claims.
     III. Debt for Nature Swap
       Our decision not to sue Hurwitz and the former directors 
     and officers of USAT is likely to attract media coverage and 
     considerable criticism from environmental groups and 
     Congress. Hurwitz has a reputation as a corporate raider, and 
     his hostile takeover of Pacific Lumber has attracted enormous 
     publicity and litigation because of his harvesting of 
     California redwoods. Environmental interests have received 
     considerable publicity in the last two years, suggesting 
     exchanging our claims for trees. We recently met with the 
     Department of the Interior, who informed us that they are 
     negotiating with Hurwitz about the possibility of a debt for 
     nature swap and that the Administration is seriously 
     interested in pursuing such a settlement. We plan to pursue 
     these settlement discussions with the OTS in the coming 
     weeks.
     IV. Updated Authority to Sue Memorandum
       We have attached an updated authority to sue memorandum for 
     your review and consideration. It sets forth the theories and 
     weaknesses of our proposed claims in great detail. It should 
     be considered for Board approval only if the Board decides, 
     as a matter of public policy, that it wants the Texas courts 
     to decide the statute of limitations and standard of care 
     issues rather than FDIC staff. The litigation risks are 
     substantial and the probability of success is very low, but 
     if the Board were to decide that it wants to go forward with 
     the filing of a complaint, we need to be prepared to file the 
     complaint in the Southern District of Texas, on or before, 
     Wednesday, August 2, 1995.
       We will be available to discuss this matter on very short 
     notice.

                                  ____
                                  

                               Record 18

       July 20, 1995--Meeting with T. Smith, JOT, M.A. and JW.
       Re: McReynolds--Kozmetsky--Hurwitz--***.
       Jack--We will not go forward if CTS ***.
       If OTS does not file suit, we will have to decide our case 
     on the merits before tolling expires.
       Memo for G.C. to Chairman--
       Updates statutes of case and recommends that we let 
     Kormetsky out.
       If suit against Hurwitz *** sue only him and not others.
       Find out if Hurwitz will talk.
       Write a memo on case status to GC.
       Ten page memo should do it.
       Continue telling *** or let them go.
       If ordinary case, we do not believe there is a 50% chance 
     we will prevail. Therefore, we cannot recommend a lawsuit.
       McReynolds--handle same as the Hill presentation.

                                  ____
                                  

                               Record 19

       July 21, 1995, 11:00 McReynolds, Department of the 
     Interior.

                                  ____
                                  

       July 21, 1995.
       8K acres; 3800 core Merelot Bird, Fish & Wildlife.
       Habitat conservation plan and cutting plan with MAXXAM. Has 
     til 9/15 to tell us about cutting plans.
       M called Allen at home last Thursday at 8 p.m.
       Wilson Task Force--creative strategy for acquisition of the 
     3800.
       BLM
       Gov's Office--California Resources Agency--California Fish 
     and Game--State Park Bird--California Coastal Conservancy. 
     Six individuals serve on task force. American Lands 
     Conservancy--negotiate sometimes for Interior.
       Gov. Wilson--Terry Gordon--various acquisition strategies.
       California has sections of timber to trade $100 M.
       H values 8K at 500 M. Interior wants to deal it down. H 
     really wants $200 M total.
       California delegate is really putting the pressure on.
       Dallas/Ft. Worth--Base closure--Wednesday 10:30 meeting 
     with OTS.
       Memo for Chairman.
       Frances 208-4615; Alan McReynolds 202-208-6308.

                                  ____
                                  

                               Record 20

                               Record 21

       $400,000 expenses on OTS
       Have not decided whether to bring case--won't decide for 
     some months.

[[Page E2483]]

       Alan McReynolds--Admin. wants to do deal
       --Gov. Wilson w/DOI had task force of 6 groups. Told to 
     find way to make it happen
       --CA will trade $100 million CA timber
       --Admin. might ?? mil. base
       Had call from atty. appraisal on prop. for $500m. Said they 
     want to make a deal. Don't know how much credence we have 
     from them about a claim. At same time telling them to get rid 
     of claim. He can't cut them down.
       If we drop suit, will undercut everything.

                               Record 22


                                  USAT

       May recall briefed re OTS--paying some months ago. OTS is 
     making progress, but not ready. Thus, tolling again. OTS 
     staff hopes to have draft notice of charges to Hurwitz, et 
     al, Aug.-Sept. (Apologize for short fuse)--we thought we 
     would be able to put off a final decision until OTS acted. 
     Hurwitz refused to toll.
       Normal matter, we would close out under delegated authority 
     w/o bringing it to your--Bd'S--attention.
       However, given (a) visibility--tree people, Congress and 
     press; (b) basis is Texas S of L, we thought you--Bd--should 
     be advised of what we intended to do--and why--before it is 
     too late.
       OTS is looking at: 1) Bad loans; incl. park 410; 2) MBS--
     Joe's portfolio.


                                  UMBS

       (3) Maxxam capital maintenance agreement
       (4) UFG tax claim, etc, agreement in principal to settle 
     subject to B C+ approval. $9.6m.
       If FDIC case--(1) Bad loan--Park 410 (4 yrs); (2) MBS--
     Joe's portfolio (2\1/2\ yrs); UMBS (2-4 yrs).
       During last two years law has moved against us in Texas.
       S of L: Dawson--2 yrs ago--more than ? Acton-- this 
     spring--more than ??? ??--Loose on Park 410.--Loose (most or 
     all) on UMBS;--Likely loose Joe's portfolio 70% most, or all, 
     out..
       OTS--No apparent S of L issue (except Kozmetski**)
       Merits: Joe's portfolio--not unwinding, starting 1/187 is 
     most likely to survive.
       (1) Facts--3 mos earlier, S of L 1+yr later, done
       (2) Standard of core--gross neg. Texas--punitive damage 
     case--cited in intentional/knowing * * *
       Bottom line: likely to lose on S of L let it go or have ct. 
     dismiss it.
       Redwood swap--Interior/Calif; Forests--base--FDIC/OTS 
     claim(?)
       Continue to fund OTS; We'd also write Congress re what & 
     why rather than awaiting reaction mechanics: Brief Deputies; 
     Board presentation.

                                  ____
                                  

                               Record 23

                                Context

       Sue by Aug 2--Kurwitz, the rest rolled tolling following
       Hurwitz, insiders have tolled w/OTS
       Proposes: if authority ``one last chance'' for Hurwitz to 
     toll; not sue others
       OTS is investigating Draft Notice of charges coming--staff
       Loans
       Joe's Portfolio
       UMBS
       New worth maintance: [UFG] toll Maxxam
       Redwoods--`Headwaters
       Press, environmentalists Congress follow Interior trying to 
     find a deal (Legislation to achieve)
       Delima (why they get paid the big bucks--take:
       Hit for dismissed suit
       Hit for walking based on staff analysis of 70% loss if 
     most/all on S & L
       Likely cost $4m & $2m.
       If out early or S & L or able to slow--stay due to OTS, 
     lower. But no guarantees.
       Very difficult to value: if survives S & L largely in tact

                                  USAT

       When last discussed think everyone's hope was OTS *** would 
     avoid the fateful day when our principals had to decide . . . 
     whether to sue on USAT
       Hurwitz refusal to toll wrecked that plan.
       ATS recommends suit against Hurwitz, some--not all--others 
     tolling with
       Also states intention to let go 3 outside directives OTS 
     isn't tolling with
       We believe USAT Ds, Os & defacts dir/o Hurwitz were grossly 
     neg in
       (1) Lending--Park 410
       (2) Joe's Portfolio
       (3)UMBS
       The problems include:
       (A) S of L--Park 410, no reasonable basis under existing 
     law
       Joe's . . . when liq--money at UMBS . . . $100m out, $80m 
     to go . . . $50-$60m principal lost
       (B) Hurwitz is defacto dir
       (C) FHLB policies did encourage `games' w/ futures & 
     options acctg
       Looked for other g.f. claim
       Recommend Hurwitz--defacto D&D & control person, breached 
     duty of loyalty to USAT in failing to cause UFG, MCO 
     federated to honor capital maintance obligations!
       Beats S of L
       Tough merits case [$150m]

                                  ____
                                  

                               Record 25


                                            Patton Boggs, llp,

                                                    Anchorage, AK.
     To: Joli Pecht
     Company: Maxxam
     Fax Number: 713-267-3702
     Total Pages Including Cover: 3
     From: John C. Martin
     Sender's Direct Line: 907-263-6032
     Date: August 7, 2000
     Client Number: 5921.101
       Comments: Joli, I found this memo to the file immediately 
     after our conversation. I thought you might be interested to 
     see the memo. (Note that the automatic date on our system 
     changed the date of the memo from July 14, 1995 to today's 
     date.)
       I'll look for more documents as time permits in the next 
     few days.
     John

                          PATTON BOGGS, L.L.P.

     Memorandum
     TO: File/5921.101.
     FROM: John C. Martin.
     DATE: July 14, 1995.
     SUBJECT: Conversation with Allen McReynolds.
       I had a telephone conversation with Allen McReynolds 
     concerning the Department of Interior's approach to the 
     Headwaters Forest property matter. We talked about a number 
     of different aspects of the matter. He indicated that (i) the 
     Department of Interior wants to acquire the property, (ii) he 
     does not believe legislation is necessary, (iii) he and 
     others believe that the transaction should be a cash 
     agreement rather than a land exchange, and (iv) he believes 
     the Governor's office should take the lead in negotiations on 
     the subject. The following summarizes the information and 
     comments he provided.
     The Department's Desire to Acquire the Property
       McReynolds said several times during the course of the 
     conversation that the Department of Interior wants to see the 
     property acquired. He said that the Secretary is very aware 
     of the fact that this is a very important regional issue. He 
     explained that the Department would like to make this a 
     ``bipartisan'' effort.
     McReynolds' Role
       McReynolds said that he will be the ``point person'' on the 
     project. While he claimed to be new to the problem, he said 
     that he had already visited with the BLM in Washington and 
     California and that he had met with the Governor's office 
     concerning the matter. It was clear that he had read much of 
     the background material on the subject.
       McReynolds is in the Secretary's office. He has a good 
     reputation within the Department.
     Deference to the Governor's Office
       McReynolds said four different times during the 
     conversation that he believes that Governor Wilson's office 
     is properly the lead for negotiations on the matter. He 
     claimed that he does ``not want to insult'' the Governor. He 
     said that Terri Gordon will be the leader of the 
     negotiations. He is very concerned that meetings held in 
     Washington, without Gordon's attendance or at least her 
     assent, will create problems that will make it difficult to 
     come to an agreement. He said that he did not want to ``send 
     a signal'' that this matter is ``political.''
       Indeed, he said that the recent meeting among Democratic 
     staffers created potential problems. He was acquired to 
     explain at length the reason for the meeting to Gordon.
     The Wednesday Meeting Between Democratic Congressional Staff 
         and McReynolds
       McReynolds confirmed that neither the Secretary nor anyone 
     else from Interior, met with members of Congress on 
     Wednesday, July 12th. Instead, the meeting included various 
     staff from a few California members including Brown and 
     Stark. There were no staff members from Boxer or Feinstein's 
     offices.
       He said that a letter from the members requesting a meeting 
     prompted the Wednesday meeting. He also said that a 
     comparable request was sent to the Department of Agriculture.
     The Department's Negative View of Riggs' Legislation
       McReynolds said that BLM dislikes the approach taken in 
     what he described as ``Riggs' bill.'' He muttered words to 
     the effect of, ``we should not exchange old growth forest to 
     get old growth forest.''
     The Department's Desire to Acquire the Property Without 
         Legislation
       McReynolds said two different times during the conversation 
     that he does not believe that legislation is necessary to 
     acquire the property. He believes that the Department can 
     acquire the property using its administrative authority. More 
     specifically, he said that he believes that property can be 
     sold to accumulate money that could be used in the 
     acquisition. He recognizes that several pieces of property 
     must be sold to raise enough money to pay for the 
     acquisition. He implied that the Governor's office and the 
     California Democratic delegation favor this approach.
       While he did not elaborate, he indicated that he believed 
     that a ``three-way deal'' is the appropriate approach. He 
     said that Terri Gordon is working with the American Land 
     Conservancy on the subject.
     Potential Meeting
       McReynolds said that he would be pleased to meet with us 
     along with Terri Gordon. He suggested that, if we are so 
     inclined, we could set a meeting with Gordon either here or 
     in Sacramento. He suggested that we

[[Page E2484]]

     schedule the meeting for some time after he returns from his 
     one-week vacation.
     CC: Thomas H. Boggs, Jr.
     Donald V. Moorehead
     Aubrey A. Rothrock

                                  ____
                                  

                               Record 26

              OTS/FDK Meeting July 26, 1995 at 10:50 a.m.

                                J. Smith

       Hurwitz won't sign tolling agreement with FDIC. Need to 
     file lawsuit by August 2.
       J. Thomas--Chance of success on State limitations is 30% or 
     less.
       --Will continue discussions with Helfer.
       --Pressure from California congressional delegation to 
     proceed

                   Dept. of Interior--Alan McReynolds

       --Administration interested in resolving case and getting 
     ***.
       --Pete Wilson has put together a multi-game fish group
       --California would put up $100 million of California 
     timberland
       --Hurwitz wants a military base The Dalles and find work--
     suitable for commercial development
       --Hurwitz also wants our claims settled as part of the deal
       Two weeks ago--Hurwitz' lawyer called Terri Gordon at home 
     and told him he should not be tuned out by $500 million 
     appraisal.
       What is OTS' schedule? How comfortable is OTS with giving 
     info to Interior

                               R. Stearns

       Tolling Agreement extended until December 31, 1995 with 30-
     day kickout beginning September

                                  ***

       16 witnesses in June including Hurwitz working on 2d draft 
     of NOC

                                K. Guido

       --MBS Case Summary
       --We have done a $$ analysis of what we think we can claim 
     in NOC

                               B. Rinaldi

       --Net Worth Case Summary
       Negotiating with UFG regarding settlement of net worth 
     claim
       Looking at Maxxam

                              J. Williams

       (1) Need copies of Tranx--copies of diskettes
       (2) Send documents' exhibits to J. Williams
       --Cover letter to Jeff--sharing and assistance under 
     statutue
       Duffy--Where is he?
       --Need to get together with Duffy and Hargett

                        USAT/UFG Value of Claims

       Net Worth Maintenance Obligations UFG/MAXXAM & Federated 
     [REDACTED] (para. 76/73).
       Reckless Speculation In Mortgage Backed Securities.
       Unsafe and Unsound Loans to Affiliated Parties (including 
     Cost of Funds @ 9%). [REDACTED]
       Sub Total Cost of Funds from December 31, 1988 to Present 
     (7\1/2\% Cof FDIC).
       Total Residual Value of Park 410.

                   OTS/FDIC Meeting on July 26, 1995

     Bryan Veis OTS (Enforcement).
     Paul Leiman OTS (Enforcement).
     Jeffy Williams FDIC Legal.
     Ken Guido OTS (Enforcement).
     John V. Thomas FDIC PLS.
     Rick Stearns OTS (Enforcement).
     Jack Smith FDIC.
     Bob Dettenzel FDIC PLS.
     Marilyn Anderson FDIC PLS.
     Thomas Hecht Hopkins & Sutter.
     John Rogers Hopkins & Sutter.
     Bruce Rinaldi OTS (Enforcement).

                                  ____
                                  

                               Record 27


   TRANSCRIPT OF A MEETING OF THE BOARD OF DIRECTORS OF THE FEDERAL 
 DEPOSIT INSURANCE CORPORATION HELD IN THE BOARD ROOM, FEDERAL DEPOSIT 
   INSURANCE CORPORATION BUILDING, WASHINGTON, DC (Closed to Public 
                Observation--August 1, 1995; 10:05 a.m.)

       At 10:05 a.m. on Tuesday, August 1, 1995, the Board of 
     Directors of the Federal Deposit Insurance Corporation met in 
     closed session in the Board Room of the FDIC Building located 
     at 550 17th Street, NW., Washington, DC, to consider certain 
     matters which it voted, pursuant to subsections 552b(c)(4), 
     (c)(6), (c)(8), (c)(9)(A)(ii), (c)(9)(B), and (c)(10) of 
     Title 5, United States Code, to consider in a meeting closed 
     to public observation.
       Ricki Helfer, Chairman of the Board of Directors; Andrew C. 
     Hove, Jr., Vice Chairman of the Board of Directors; Stephen 
     R. Steinbrink, acting in the place and stead of Eugene A. 
     Ludwig, Director (Comptroller of the Currency); Jonathan L. 
     Fiechter, Director (Acting Director, Office of Thrift 
     Supervision); Leslie A. Woolley, Deputy to the Chairman for 
     Policy; William A. Longbrake, Deputy to the Chairman for 
     Finance and Chief Financial Officer; Roger A. Hood, Deputy to 
     the Vice Chairman; Walter B. Mason, Jr., Deputy to the 
     Director (Office of Thrift Supervision); Stephen L. 
     Ledbetter, Special Assistant to the Deputy to the Chairman 
     and Chief Operating Officer; James D. LaPierre, Special 
     Assistant to the Deputy to the Chairman and Chief Operating 
     Officer; James Phillip Battey, Assistant to the Chairman for 
     Public Affairs; Stanley J. Poling, Assistant to the Deputy to 
     the Chairman for Finance; Diane Page, Assistant to the Deputy 
     to the Director (Comptroller of the Currency); William F. 
     Kroener, III, General Counsel; Paul L. Sachtleben, Director, 
     Division of Compliance and Consumer Affairs; Robert H. Hart-
     heimer, Director, Division of Resolutions; Steven A. Seelig, 
     Director, Division of Finance; John F. Bovenzi, Director, 
     Division of Depositor and Asset Services; Carmen J. Sullivan, 
     Ombudsman; Jerry L. Langley, Executive Secretary; Alice C. 
     Goodman, Director, Office of Legislative Affairs; James A. 
     Renick, Senior Deputy Inspector General; Jack D. Smith, 
     Deputy General Counsel, Litigation Branch, Legal Division; 
     Eric J. Spitler, Deputy Director, Office of Legislative 
     Affairs; John V. Thomas, Associate General Counsel, 
     Professional Liability Section, Litigation Branch, Legal 
     Division; A. David Meadows, Associate Director, Operations 
     Branch, Division of Supervision; Paul M. Driscoll, Associate 
     Director, Operations and Agreement Management Branch, 
     Division of Resolutions; Stephen N. Graham, Associate 
     Director (Operations), Operations Branch, Division of 
     Depositor and Asset Services; Thomas A. Schulz, Assistant 
     General Counsel, Corporate and Special Litigation Section, 
     Litigation Branch, Legal Division; Henry R.F. Griffin, 
     Assistant General Counsel, Resolutions Section, Supervision 
     and Legislation Branch, Legal Division; Jesse G. Snyder, 
     Assistant Director, Office of Supervision and Applications, 
     Operations Branch, Division of Supervision; Gerald B. 
     Stanton, Assistant Director (Assisted Acquisitions (FRF)), 
     Operations and Agreement Management Branch, Division of 
     Resolutions; M. Lauck Walton, Assistant General Counsel, 
     Professional Liability Section, Litigation Branch, Legal 
     Division; Patti C. Fox, Assistant Executive Secretary; John 
     H. Hatch, Assistant Inspector General, Office of Supervision 
     and Resolutions Division Audits, Office of Inspector General; 
     Susan E. Carroll, Special Assistant to the Director, Division 
     of Supervision; John M. Lane, Manager, Special Situations and 
     Applications Section I, Office of Supervision and 
     Applications, Operations Branch, Division of Supervision; 
     John F. Carter, Manager, Special Situations and Applications 
     Section II, Office of Supervision and Applications, 
     Operations Branch, Division of Supervision; Bobby L. Hughes, 
     Chief, Case Management Section, Office of Assisted 
     Acquisitions (FRF), Operations and Agreement Management 
     Branch, Division of Resolutions; Marilyn E. Anderson, Senior 
     Counsel, Professional Liability Section, Litigation Branch, 
     Legal Division; Thomas L. Holzman, Counsel, Corporate and 
     Special Litigation Section, Litigation Branch, Legal 
     Division; Jeffrey R. Williams, Counsel, Professional 
     Liability Section, Litigation Branch, Legal Division; Richard 
     B. Foley, Senior Attorney, Resolutions Section, Supervision 
     and Legislation Branch, Legal Division; Robert J. DeHenzel, 
     Senior Attorney, Professional Liability Section, Litigation 
     Branch, Legal Division; Jeffrey P. Bloch, Senior Attorney, 
     Resolutions Section, Supervision and Legislation Branch, 
     Legal Division; Wendy B. Kloner, Senior Attorney, Corporate 
     and Special Litigation Section, Litigation Branch, Legal 
     Division; Marilyn R. Kraus, Audit Manager, Assistance 
     Agreement Audit Branch, Office of Inspector General; Lars S. 
     Viitala, Senior Tax Accountant, Tax Unit, Office of Assisted 
     Acquisitions (FRF), Operations and Agreement Management 
     Branch, Division of Resolutions; Garfield Gimber, III, 
     Examination Specialist, Planning and Program Development 
     Section, Operations Branch, Division of Liquidation; Mark C. 
     Randall, Ombudsman, San Francisco Region, Division of 
     Depositor and Asset Services; and Regena S. McMillian, 
     Operations Assistant, Record Services Group, Operations Unit, 
     Operations Assistant, Record Services Group, Operations Unit, 
     Operations Section, Office of the Executive Secretary, were 
     present at the meeting.
       Chairman Helfer presided at the meeting; Mr. Langley acted 
     as Secretary of the meeting.


                         P R O C E E D I N G S

       Chairman Helfer: I'm pleased to call this morning's meeting 
     to order. May I have a Sunshine motion?
       Vice chairman Hove: Make a Sunshine motion. [I move that 
     the Board of Directors determine that Corporation business 
     requires its consideration of the matters which are to be the 
     subject of this meeting on less than seven days' notice to 
     the public; that no earlier notice of this meeting was 
     practicable; that the public interest does not require 
     consideration of the matters which are to be the subject of 
     this meeting in a meeting open to public observation; and 
     that these matters may be considered in a closed meeting 
     pursuant to subsections 552b(c)(4), (c)(6), (c)(8), 
     (c)(9)(A)(ii), (c)(9)(B), and (c)(10) of Title 5, United 
     States Code.]
       Chairman Helfer: And a second.
       Director Fiechter: Second.
       Chairman Helfer: All in favor?
       Vice Chairman Hove: Aye.
       Director Fiechter: Aye.
       Mr. Steinbrink: Aye.
       Chairman Helfer: Redacted by Committee on Resources.
       Mr. Walton: Redacted by Committee on Resources.
       Chairman Helfer: Redacted by Committee on Resources.
       Director Fiechter: Redacted by Committee on Resources.
       Vice Chairman Hove: Redacted by Committee on Resources.
       Mr. Steinbrink: Redacted by Committee on Resources.
       Chairman Helfer: Redacted by Committee on Resources.

[[Page E2485]]

       Mr. Walton: Redacted by Committee on Resources.
       Chairman Helfer: Redacted by Committee on Resources.
       Vice Chairman Hove: Redacted by Committee on Resources.
       Chairman Helfer: Redacted by Committee on Resources.
       Director Fiechter: Redacted by Committee on Resources.
       Chairman Helfer: Redacted by Committee on Resources.
       Vice Chairman Hove: Redacted by Committee on Resources.
       Director Fiechter: Redacted by Committee on Resources.
       Mr. Steinbrink: Redacted by Committee on Resources.
       Chairman Helfer: Redacted by Committee on Resources.
       Mr. Walton: Redacted by Committee on Resources.
       Chairman Helfer: The--second memorandum with respect to a 
     professional liability suit involves United Savings 
     Association of Houston, Texas. Mr. Thomas.
       Mr. Thomas: I will try to be brief but I won't be able to 
     be quite that brief. With me today are Marilyn Anderson, 
     Senor Counsel in section, and Jeff Williams and Bob DeHenzel, 
     who will be called upon if there are hard questions.
       Chairman Helfer: Good, we're glad you have help.
       Mr. Thomas: Well, after the first one I'm not sure I'll 
     need any.
       Vice Chairman Hove: Don't be so sure of that.
       Chairman Helfer: You've got to watch those attorneys, don't 
     you?
       Mr. Thomas: The memorandum that we have before us today 
     seeks authority to sue Charles Hurwitz as a de facto director 
     and officer of United Savings Association of Texas, or USAT, 
     also as a control person of that entity, and it also seeks 
     authority to sue three insiders of USAT. The claim is based 
     on--the case will be based on three claims, the first--
     (Redacted by Committee on Resources).
       Chairman Helfer: So if suit is not in--if we--if we don't 
     authorize suit today and suit is not brought tomorrow, all 
     these claims are lost.
       Mr. Thomas: To the FDIC.
       Staff has conducted an extensive investigation. We spoke to 
     them a few days ago. I know they intended to speak to 
     Director Fiechter in the interim. I hope they were able to do 
     that. They are preparing a draft notice of charges, but no 
     decision has been made by the director--at least none had 
     been made as of last week, I assume it's still true--on 
     whether to bring all or any portion of that claim.
       The Board must decide today whether to bring this claim. 
     The reason we must decide today is that Charles Hurwitz 
     declined to extend the tolling agreement with us. He extended 
     the tolling agreement with OTS, but he did not extend the 
     tolling agreement with the FDIC. So we must sue tomorrow, if 
     we are to sue unless, if suit is authorized, he agrees to a 
     tolling agreement. What we would propose to do, unless the 
     Board believes we should do otherwise, if suit is authorized, 
     we would call Mr. Hurwitz' counsel and advise that we will 
     sue unless we have a tolling agreement in hand by noon 
     tomorrow. We do not know whether he would sign that agreement 
     or not. And we certainly would not--we would urge the board 
     not to approve this on the assumption that he will sign the 
     tolling agreement, but we think there is a realistic 
     possibility that he may. We would make that recommendation 
     because the statute of limitations problems are serious 
     enough. We'd rather not raise them if we can avoid that 
     without injuring our position.
       This is, of course, a very visible matter. It is visible 
     for something having no direct relationship to this case, but 
     having some indirect relationship. Mr. Hurwitz, through 
     Maxxam, purchased Pacific Lumber. Pacific Lumber owns the 
     largest stand of virgin redwoods in private hands in the 
     world, the Headwaters. That has been the subject of 
     considering--considerable environmental interest, including 
     the picketing downstairs of a year or so ago. It has been the 
     subject of Congressional inquiry and press inquiry. So we 
     assume that whatever we do will be visible.
       Interior, you should also be aware--aware, the Department 
     of Interior is trying to put together a deal to get the 
     headlines [sic] trade property and perhaps our claim. They 
     had spoken--they spoke to staff a few days ago about that and 
     staff of the FDIC has indicated that we would be interested 
     in working with them to see whether something's possible. We 
     believe legislation would ultimately be required to achieve 
     that. But again, if it's the Board's pleasure, we would at 
     least try to find out what's happening and pursue that matter 
     and make sure that nothing goes on we're not aware of--we're 
     not part of.
       This is a difficult case. Redacted by Committee on 
     Resources.
       Chairman Helfer: Under adverse domination.
       Mr. Thomas: Redacted by Committee on Resources.
       Chairman Helfer: Are there questions?
       Director Fiechter: One comment. I'm told by our Enforcement 
     staff that they will be making a recommendation to me 
     sometime in mid to late September, but don't have one at 
     present, as to how we might proceed.
       Vice Chairman Hove: Because I'm curious to know what 
     happens, if we choose not to pursue this, with the OTS claim 
     and--
       Mr. Thomas: It--it would have no direct affect on the OTS 
     claims.
       Vice Chairman Hove: Okay.
       Mr. Thomas: They have tolling agreements in place with--
     with all four of these gentlemen and those tolling agreements 
     would not be off--are not affected by--by our action one way 
     or the other.
       Chairman Helfer: As I understand it, the other three have 
     agreed to tolling agreements--
       Mr. Thomas: Right.
       Chairman Helfer:--with the FDIC.
       Mr. Thomas: And we wound not sue them tomorrow.
       Chairman Helfer: Okay. And that it's--to Hurwitz who has 
     not agreed, although he has agreed to a tolling agreement 
     with the OTS.
       Mr. Thomas: That's correct.
       Chairman Helfer: And therefore, you've asked the Board to 
     take a look at--at all of the--the body of the case and all 
     of the prospective defendants, but would propose to bring 
     suit only against Hurwitz, if he fails to provide the 
     appropriate tolling agreement by noon tomorrow.
       Mr. Thomas: Yep. We're--we're seeking authority on the 
     mort--on both the mortgage-backed securities claims to sue 
     all four people so--Redacted by Committee on Resources.
       Chairman Helfer: So if suit is not in--if we--if we don't 
     authorize suit today and suit is not brought tomorrow, all 
     these claims are lost.
       Mr. Thomas: To the FDIC.
       Chairman Helfer: To the FDIC.
       Mr. Thomas: Any recov--
       Chairman Helfer: The OTS is separate.
       Mr. Thomas: That's right. And any recoveries by OTS would 
     come to the FDIC.
       Chairman Helfer: Are the--does the FDIC's authorization to 
     sue enhance the prospect--prospects for a settlement on a 
     variety of issues associated with the case?
       Mr. Thomas: It might have some marginal benefit but I don't 
     think it would make a large difference. I think the reality 
     is that FDIC and OTS staff have worked together, expect to 
     continue to work together, and so, I don't think it would 
     have a major impact. It might make some difference, but I 
     think particularly any effort to resolve this with--with--a 
     solution that involves the redwoods would be extremely 
     difficult. The FDIC would have to be involved whether we 
     authorize suit or not. And so you--you're talking about a 
     marginal difference.
       Chairman Helfer: On the--the--basically, as I understand 
     the--the Fifth Circuit's judgments about Texas law, they 
     essentially say that the statute of limitations begins 
     running at the point at which the conduct took place; that 
     it's complained about, even though those individuals who were 
     in control of the institution and committed the conduct would 
     not have been likely to sue themselves--
       Mr. Thomas: That's correct.
       Chairman Helfer: --on behalf of the institution. And that 
     the theory of adverse domination is that, during that period 
     when the individuals in control were unlikely to sue 
     themselves because of their misconduct or their gross-
     negligence as the case may be, that courts in some 
     jurisdictions have recognized the tolling of the statute of 
     limitations. That is, the tolling of the commencement of the 
     period when the statute of limitations will run, until that 
     point at which the institution's no longer under adverse 
     domination.
       Mr. Thomas: Right.
       Chairman Helfer: But that Texas law has been interpreted to 
     the contrary.
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: But as to one of the claims, you believe 
     there is a reasonable argument that you can get beyond that 
     issue.
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: But they have a continuing obligation, 
     however, one could argue, on the part of the bank to 
     reexamine these investments on a regular basis. And that's 
     the theory behind all of our judgments about banks having 
     sufficient controls in place to make a judgment about whether 
     their continuing stewardship of the institution can be 
     justified on safety and soundness grounds.
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: Given the problems with the adverse 
     domination interpretation of the Fifth Circuit, I take it, it 
     would be--it would be advantageous to salvage some aspects of 
     these--these theories if--if that were possible.
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: I'm sorry, what's a Rule 11 motion?
       Mr. Thomas: For sanctions for bad faith pleading.
       Chairman Helfer: Uh-huh.
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: I see. So you're not recommending bringing 
     that claim.
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: How much had they lost?
       Mr. Thomas: I don't know the answer to the question but it 
     was not a disaster. When they put in the additional $80 
     million, they were not putting money into an entity that was 
     insolvent or close to insolvent. And because--
       Chairman Helfer: Is that the standard for gross negligence?
       Mr. Thomas: (Redacted by Committee on Resources).

[[Page E2486]]

       Chairman Helfer: Are there any other comments or questions?
       Director Steinbrink: I--I had one very general question to 
     get your opinion on. If--if we bring this litigation and--and 
     the courts follow the trend they've been doing and--and slap 
     us, does that in any way impact the OTS's case, in your 
     opinion?
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: But that's simply trying the OTS case 
     ahead of the OTS case.
       Vice Chairman Hove: Um-huh.
       Mr. Thomas: That's--that's right. And--
       Chairman Helfer: That's the issue that would be presented.
       Mr. Thomas: That's right. It--it would be very unlikely 
     this case would go to trial on the merits before an OTS 
     matter went forward, assuming it's going to go forward before 
     the tolling agreements at the end--the end of this year.
       Vice Chairman Hove: How much do we spend in--in this case 
     before we know about the mortgage-backed security issue, 
     John?
       Mr. Thomas: There's good news and there's bad news. If we 
     plead it well and argue it well, we may get to spend a lot. 
     If--if--if it goes out on a--on a early motion, then that 
     would control--it would contain the cost. But we're--we're 
     certainly going to try to plead it to keep it in, if we go 
     forward with this. It would--and, if we succeed, it would 
     come down to a fact question for the jury at trial, as to 
     whether the statute of limitations had run before--
       Chair Helfer: That's a fact question--
       Mr. Thomas: Well, in--
       Chairman Helfer: --not a law question?
       Mr. Thomas: --in terms of when the actions took place. If--
     one of the--if--if we can play it out that far. We're not--
     you know, I think there's a--
       Chairman Helfer: Isn't it much more likely that it would be 
     resolved on a motion to dismiss?
       Mr. Thomas: Yeah. Or--or a motion for summary to--
       Chairman Helfer: If it were going to be resol--
       Mr. Thomas: Yes. Or a motion for summary. Well, either one.
       Chairman Helfer: Sorry--or a motion--either one, actually.
       Mr. Thomas: Yeah. I think that's the likely--
       Director Fiechter: What will the outlay be? I mean, I think 
     you mentioned $6 million to go all the way.
       Mr. Thomas: I would assume if it--well, if we keep in the 
     claim for failing to have the other institutions honor their 
     net worth maintenance agreements, presumably the litigation 
     would continue for some time. I imagine we're committed to 
     spending at least half a million dollars and quite possibly 
     most or all of $4 million to get to trial, if we go forward.
       Chairman Helfer: On that claim.
       Mr. Thomas: On--
       Chairman Helfer: The question I think was, what about that 
     claim that's resolved on a motion to dismiss or a summary 
     judgment motion?
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: (Redacted by Committee on Resources).
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: (Redacted by Committee on Resources).
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: (Redacted by Committee on Resources).
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: (Redacted by Committee on Resources).
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: To summarize, you're recognizing--you--
     you're recommending that the Board authorize the suit. You 
     are indicating that the pleadings would su--would withstand a 
     Rule 11 motion.
       Mr. Thomas: They should. I--I don't warrant that they will, 
     but I warrant that they should. The difference is the 
     District Courts in the Fifth Circuit.
       Chairman Helfer: (Redacted by Committee on Resources.)
       Mr. Thomas: I'm not going to argue that there is a better 
     than 50 percent chance of recovery in this case. But it is--
     we--we're not talking about a 5 [percent] or 10 percent case. 
     We think the statute of limitations issue is about 70 percent 
     against us on the mortgage-backed securities claims. We think 
     the claims on the merits are roughly 50/50.
       Director Fiechter: So what is the math here? We would have 
     spent $4 million to go to trial, $2 million in trial. And 
     they had a--what is the likely probability of the settlement 
     and the chance that we'll collect?
       Mr. Thomas: Well, if you want to multiply the math out, 
     and, unlike most of our cases, I think this is one where they 
     are relatively independent variables; most of them, I think, 
     are highly dependent and when you start multiplying them 
     together, you get a silly result. But here, 35 percent would 
     not be an unrealistic expectation in terms of this--a 
     substantial verdict being returned here. And if we get past 
     the summary judgment motions, our estimate is that the case 
     would have between--(redacted by Committee on Resources)--
     settlement value. But it is extremely difficult to value a 
     case of this size and a case with these risks, because 
     they're unlike a D&O case where you have $10 million in net 
     worth and a claim for $4 million. There is no market. There--
     there aren't a lot of cases like this. Those are our best 
     guesses. If--if you work through the math, the low end of 
     that would be--(Redacted by Committee on Resources).
       Chairman Helfer: Are there any other comments or questions? 
     May I have a motion to accept the staff's recommendation to 
     authorize the institution of a professional liability suit 
     against certain former directors and officers of United 
     Savings Association of Houston, Texas? Anyone want to make 
     the motion?
       Director Fiechter: I take it this is up or down if 
     tomorrow--
       Chairman Helfer: Yeah. It's up or down.
       Director Fiechter: --it runs.
       Chairman Helfer: It's up or down. I think you're saying 
     that there is a high probability that, on one of the claims, 
     the claim will not go forward on statute of limitations 
     grounds. There is a lower probability--there is a high 
     probability that the other claim will go forward despite 
     statute of limitations claims. That the chances of recovery 
     on the merits on the first claim are very high. The chances 
     of recovery on the merits on the second claim are a bit 
     lower. The probability of a high recovery, should the case go 
     forward on the merits, is significant, but that has to be 
     offset against the difficulties with respect to one of the 
     claims on statute of limitations grounds. Have I summarized?
       Mr. Thomas: It has to be offset against the statute of 
     limitations risk on the better claim, the more conventional 
     claim, and the difficulties in proving the merits of the--
     (Redacted by Committee on Resources).
       Chairman Helfer: All right. Is there a motion to accept--
     accept the staff's recommendation to proceed with suit in 
     this case?
       Mr. Steinbrink: [No.]
       Chairman Helfer: No. From you?
       Vice Chairman Hove: [No]
       Chairman Helfer: No.
       Director Fiechter: [No]
       Chairman Helfer: No. Can the chair make a motion?
       Mr. Langley: Bill says, yes, the chair can make a motion.
       Chairman Helfer: Okay. I'm going to make a motion to pursue 
     this suit in this case. Is there a second to the motion?
       Mr. Steinbrink: I've never seen this before.
       Chairman Helfer: We still can vote on the merits of this, 
     you all. I think we should have a recorded vote. So I ask for 
     a second to my motion so we can have a recorded vote on 
     whether to institute suit.
       Vice Chairman Hove: A question; clarification?
       Chairman Helfer: Yeah?
       Vice Chairman Hove: Can a motion be seconded and then voted 
     against the motion?
       Chairman Helfer: Can the person who seconds the motion vote 
     against it?
       Mr. Langley: Yes.
       Vice Chairman Hove: I will second.
       Chairman Helfer: Yes. All right, all in favor of inst--of 
     the staff's recommendation to authorize suit in this case. 
     Please record that the chair votes, yes. All opposed to 
     instituting suit in this case?
       Vice Chairman Hove: Aye.
       Director Fiechter: Aye.
       Mr. Steinbrink: I think that I would defer to the chair in 
     this case and, in the first request, vote with the chair.
       Chairman Helfer: Okay. So that would be a two to two vote 
     and I assume that that would not authorize suit in the case. 
     Is that correct?
       Mr. Langley: Right. That's correct.
       Chairman Helfer: All right.
       Director Fiechter: Well, then, we want to revisit it?
       Mr. Steinbrink: Talk some more about it.
       Director Fiechter: As I un--
       Chairman Helfer: Then I think we have to have a motion to 
     reconsider the matter by someone who voted against.
       Director Fiechter: I make the motion that we reconsider it.
       Chairman Helfer: And a second.
       Mr. Steinbrink: I will second.
       Director Fiechter: (Unclear).
       Chairman Helfer: All right.
       Vice Chairman Hove: A first.
       Director Fiechter: Can the Board members voting in favor 
     give me a sense of--
       Mr. Steinbrink: Well, I mean--
       Director Fiechter: --it's the expenditure of--we're 
     assuming--what, John?--several million dollars to figure out 
     how far we go on this?
       Mr. Thomas: Let's--let's talk through that a little bit. 
     We've spent $4 million so far on this matter. And part of 
     that--
       Chairman Helfer: I'm sorry, how much?
       Mr. Thomas: Four million dollars so far on this matter, 
     approximately.
       Director Fiechter: I was told by our staff that we're 
     taking advantage of--of your $4 million--
       Mr. Thomas: Yes.
       Director Fiechter: --of the--there's value--
       Mr. Thomas: There are--there are--
       Director Fiechter: --from our perspective.
       Mr. Thomas: --there are--three different areas of value for 
     the money that's been spent.--(Redacted by Committee on 
     Resources).
       A significant amount of money has been spent over the last 
     year, both in trying to make sure we know where we stand and 
     in working with OTS to--instead of making them relearn 
     everything, give them the information we have in a 
     meaningful, useful way; help them work through what they're 
     doing; pay for the consultants they're using.

[[Page E2487]]

     We would expect there to be overlap, if both this claim and 
     the OTS claim go forward, par--in parallel, and that's 
     another question. Both whether we would want that to happen, 
     assuming tha--that Hurwitz says, okay, sue me. And we'd have 
     a question of where the courts would--if we say our--we--we'd 
     like to stay this whole matter until OTS's matter is 
     resolved. Suppose at--at the end of the year OTS brings a 
     claim, assuming that for purposes of talking through what 
     will happen, we might very well say we would rather stay our 
     claim and let OTS resolve this instead of having the same 
     case go on two forums. The court might or might not let us do 
     that. It--we would sort of make that argument and if Hurwitz 
     joined in it, we have a better chance. But there's no 
     guarantee we'd be allowed to do that. If that happened, we 
     would hold our costs down. If they go forward in parallel, 
     there will be some significant overlap between the cost of 
     this litigation and cost which we would otherwise--
       Chairman Helfer: But we do not know whether the OTS is 
     going to bring suit.
       Mr. Thomas: That's correct.
       Chairman Helfer: That's the problem with this analysis.
       Mr. Thomas: That's correct.
       Chairman Helfer: If we knew--
       Mr. Thomas: That's part--
       Chairman Helfer: --that, we could take that into account.
       Mr. Thomas: Yeah, That's part of why I--I didn't go through 
     this discussion earlier--
       Chairman Helfer: Um-huh.
       Mr. Thomas: --because it is very problematic. Not very 
     problematic; it's an unknown. If we--(Redacted by Committee 
     on Resources).
       Chairman Helfer: I guess I don't understand your analysis. 
     We can dismiss with prejudice. We can seek a dismissal with 
     prejudice of our claims at any point--
       Mr. Thomas: That's correct.
       Chairman Helfer: --at any point that the OTS decided to 
     proceed--
       Mr. Thomas: We could certainly do that.
       Chairman Helfer: --if it decided to proceed. And--
       Mr. Thomas: Yeah.
       Chairman Helfer: And how many courts can say, no, you can't 
     dismiss your claim with prejudice. ``With prejudice'' meaning 
     that it resolves the matters for all time and we cannot bring 
     the suit again later.
       Mr. Thomas: We--we'd have to--to look at whether there's 
     any case law and I suspect the answer is no. We'd have to 
     take a risk, in terms of dismissal with prejudice, whether 
     that would prejudice our rights for restitution. I don't know 
     the answer to that question. I haven't really addressed the 
     question.
       Chairman Helfer: The rights for restitution, however, 
     relate to a contractual agreement with the OTS, don't they?
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: There--there is no benefit to proceed with 
     the case either from the court's perspective or from the 
     defendant's perspective, should we seek to dismiss out our 
     claims with prejudice. And--
       Mr. Thomas: As long--as long as we're willing to dismiss 
     them with prejudice--
       Chairman Helfer: That's point one.
       Mr. Thomas: --that's--
       Chairman Helfer: Point two, as to the--the--the issue of 
     whether it pre--prejudices our restitution, if we're seeking 
     a dismissal with prejudice because we've become convinced 
     that the statute of limitations problems are overriding and 
     that the claims will be separately pursued and the deposit 
     insurance funds will have the recoveries which they are due 
     on the merits, then I don't understand why that would pre--
     prejudice the restitution--ability to get restitution as to 
     both claims.
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: It obviously would have been helpful to 
     have worked with the OTS all along so that we weren't 
     presented at the point of the running of the statute--of the 
     tolling of the tolling agreements with this dilemma of not 
     knowing whether the merits of the claims are going to be 
     separately pursued.
       Mr. Thomas: It--we've been working actively with them for 
     over a year. We had agreed among ourselves that we would--
     both FDIC and OTS had agreed we would only extend the tolling 
     agreements with people if they agreed to extend them with 
     both. None of us realized until about 10 days ago, 13 days 
     ago, that there was even an issue as to whether Hurwitz was 
     going to sign a tolling agreement, because they had extended 
     them several times. OTS staff ultimately reached what--the 
     only possible conclusion. They were not prepared to--to make 
     a final recommendation, so they had to accept tolling with 
     Hurwitz and not--even though he wouldn't toll with us. They--
     you know, anything else would have been self-defeating. 
     That's how we got into this and I can only apologize to the 
     Board for it.
       Director Fiechter: So can you help me out? Would our 
     agreeing to sue Hurwitz now--that wouldn't necessarily be 
     ``us'' the FDIC, hedging our bet in terms of whether or not 
     OTS decides to sue in two months. You're suggesting that it 
     might complicate--
       Mr. Thomas: Sue--
       Director Fiechter: --the process if we didn't pursue a 
     parallel effort--
       Mr. Thomas: Bri--
       Director Fiechter: --for the nest couple of years?
       Mr. Thomas: Bringing the suits, I don't think, compromises 
     OTS's ability at all. The only question that I--that I see is 
     one the Chairman raised. If we said, all right, OTS has 
     brought a parallel case. It makes sense to us to stop this. 
     The court won't simply stay it. Hurwitz won't agree to a 
     dismissal without prejudice or to a dismissal without 
     prejudice to OTS as an express preservation of our right to--
     to restitution in the OTS claim. Then we have the--the 
     question, which is unresolved, whether we could simply 
     dismiss the case with prejudice, save the additional costs, 
     and if--if doing that would--would leave some risk of whether 
     we could collect for restitution. And as I say, I don't 
     believe there are any cases that actually address that issue. 
     I--because I know we talked about it from time to time in 
     other contexts and no one, in any--any of the regulators that 
     I'm aware of has ever seen a case--we haven't seen a case 
     that addresses that issue. Arguments can be made on both 
     sides.
       Chairman Helfer: Why does the case get presented if the OTS 
     has a recovery? And we have an agreement with the OTS that 
     they will restore--because we're, after all, currently paying 
     the OTS's cost for pursuing the matter and we have an 
     agreement with the OTS that if there's a recovery we--this 
     recovery will go into the bank insurance comp--funds. Whose--
     whose--whose right is it to complain?
       Mr. Thomas: The--the way it would arise is Hurwitz and the 
     other defendants would argue that OTS's claim is for 
     restitution, the restitution flowing back to the FDIC. And if 
     we have dismissed with prejudice, then they would argue that 
     that covered our right to re--recover at any forum. and I 
     would argue the contrary. But I think that it's--it's not 
     something I--that I could give--
       Chairman Helfer: But I thought the FDIC--the OTS--
       Mr. Thomas: --you a clear opinion on.
       Chairman Helfer: --has a separate right to sue--and a 
     separate--separate injuries to seek recovery on.
       Mr. Thomas: They--the restitution claims are really a right 
     to recover money for the benefit of the person who's been 
     injured. And that's--that's really the argument. Is it OTS's 
     right to recover the money and then have it go to the right 
     people? Or is it really the victim's rights and OTS is the 
     entrance through--through which collection is--is achieved. 
     And I don't think there's a--there isn't an answer that I'm 
     aware of.
       Chairman Helfer: But I thought our argument all along was 
     that the OTS has a separate right. That this isn't a 
     subterfuge to get around the FDIC statute of limitation 
     problems. That is has separate legal rights and separate 
     injuries that it can seek payment for.
       Mr. Thomas: They have separate legal rights, but whether 
     it's a separate injury is a real question. But let me--let me 
     frame the question just a little bit differently. Suppose the 
     FDIC settled with Hurwitz, gave him a general release, and 
     then OTS proceeded against Hurwitz on exactly the same claims 
     and got a restitution order. Would he be able to say, I've 
     already settled with the person who's getting this money. I 
     don't have to pay. That's the question. If you give a--
     because if we dismiss with prejudice, we'd be putting 
     ourselves essentially in that same position.
       Chairman Helfer: And--all right, then let me carry the 
     argument further. What if we didn't institute suit in this 
     case? The OTS brings it and then Hurwitz says, this is a--
     this is a restitution claim for the deposit insurance funds. 
     The institution that is responsible for managing the funds 
     has--has decided not to bring the claim. Therefore, the OTS 
     doesn't have any right to seek restitution for the deposit 
     insurance fund.
       Mr. Thomas: We think that's a lose.
       Chairman Helfer: Well, I don't--I--I don't quite understand 
     why you're so sure one may be a winner and this one--you're 
     so sure this one is a loser--
       Mr. Thomas: Wh--
       Chairman Helfer: --in the Fifth Circuit which has--
       Mr. Thomas: Wh--
       Chairman Helfer: --not been recently very favorable to the 
     FDIC.
       Mr. Thomas: What--that I'm sure about--on the question of 
     what happens if we dismiss with prejudice is I don't know an 
     answer and I don't think there is a definitive answer that 
     says we're okay. I--that--I mean, it's not that I'm confident 
     we would lose that argument, it's that--I--I simply need to 
     alert you. I--I think there is an issue there if we dismiss 
     with prejudice. We'd have to figure out whether that would 
     prejudice our claim and--and that's--that would likely to be 
     a risky issue, because it's unsettled.
       Chairman Helfer: I--I just don't understand why our failure 
     to pursue this claim doesn't give rise to that argument to 
     stop the OTS from proceeding to a claim that seeks 
     restitution for the deposit insurance fund.
       Mr. Thomas: They can certainly make that argument. I--I 
     don't remember any case that's definitely decided that, but I 
     know it's been argued about. But I don't--
       Director Fiechter: Isn't there parallel cases, or cases 
     where we would have pursued it for the benefit of you or the 
     RTC?
       Mr. Thomas: The--I don't remember any that actually have 
     gotten to a point where the claim had expired and money was 
     transferred, that weren't settled.
       Vice Chairman Hove: John, a point of clarification, are--is 
     this suit from deposit insurance funds or is this for the 
     FSLIC resolution fund?
       Mr. Thomas: The FSLIC resolution fund.
       Vice Chairman Hove: Thank you. I--it did not make a 
     difference--

[[Page E2488]]

       Chairman Helfer: But it's still the FDIC as manager.
       Vice Chairman Hove: It's still the FDIC, I agree, but I 
     think (unclear)--
       Chairman Helfer: No, I appreciate the clarification for the 
     record. Yes.
       Mr. Thomas: Yes, it--particularly if there was ever an 
     issue, in terms of resolution of--of this as part of the 
     settlement, with the Int--involving Interior and the 
     redwoods, that--it might make a difference in terms of how 
     complicated the legislation had to be to achieve it. Because 
     it--where you--it's an issue of taxpayer money rather than 
     insurance fund money.
       Mr. Steinbrink: Can--can I go back and be a little more 
     basic. And--and--and--and correct me if--if I've got in my 
     mind this--this--this wrong. But we've got a group of 
     individuals here who have cost the FDIC $1.6 billion. We've 
     got a court system that has not ruled in our favor, recently, 
     on certain elements of the case. We've spent 4 million bucks 
     and we may spend 10 million bucks, plus another [$]600,000, 
     if you go all the way through this case. And we've got the 
     possibility--there is never a guarantee in this world--of a 
     50 percent success rate, perhaps lower but 50 percent, for 
     settlement somewhere in the--(Redacted by Committee on 
     Resources).
       Mr. Thomas: Well, the [$]7 [million] to [$]14 [million] is 
     simply multiplying the percentage likely--the success, 
     against that range. That's--
       Mr. Steinbrink: And we've got a statute of limitations that 
     expires tomorrow and we've got another federal agency whose 
     pursuing the same actions.
       Mr. Thomas: They're investigating.
       Chairman Helfer: We don't know that yet.
       Mr. Steinbrink: Maybe.
       Chairman Helfer: They're looking at it.
       Mr. Thomas: They're investigating, yes.
       Mr. Steinbrink: Now, is there anything in there that's--
     that's necessarily wrong?
       Mr. Thomas: I think you had an extra $600,000 added on, but 
     other--in our--our cost--
       Mr. Steinbrink: (Redacted by Committee on Resources).
       Mr. Thomas: Yeah. Yeah. But, no--
       Director Fiechter: Am I right, John--
       Mr. Steinbrink: And--
       Director Fiechter: Oh, sorry.
       Mr. Steinbrink: And by--if--if we choose to pursue this 
     case, in your opinion we are not going to harm the OTS's 
     case.
       Mr. Thomas: I think that's right.
       Mr. Steinbrink: And if you--if we choose to--not to, we 
     probably won't harm the OTS's case.
       Mr. Thomas: I think that's correct.
       Director Fiechter: But that if we do pursue it, you're not 
     certain whether we, the FDIC, can drop out. Should OTS decide 
     to pursue, we have parallel--
       Mr. Thomas: We have a--a reasonable prospect to being able, 
     in one way or another, to drop out. In fact, we probably have 
     a good prospect, but we don't have a guarantee that we can do 
     it.
       Chairman Helfer: Can you give me an example of a court that 
     has refused to allow a case to be dismissed with prejudice by 
     the party that sought--
       Mr. Thomas: No.
       Chairman Helfer: --to bring the case?
       Mr. Thomas: No. There's not question we could--if--we can 
     get out.
       Chairman Helfer: But you're raising the restitution issue.
       Mr. Thomas: Right. Right. Yeah, there's no question--
       Chairman Helfer: Whether we would want to.
       Mr. Thomas: Right.
       Chairman Helfer: So then your issue is, would the court 
     stay the proceeding? If this--do you think it is likely Mr. 
     Hurwitz would want to proceed with both sets of litigation 
     simultaneously?
       Mr. Thomas: He shouldn't.
       Chairman Helfer: If he had a chance to stay one of the 
     proceedings and not spend the money on one of them, do you 
     think he'd likely take that chance?
       Mr. Thomas: He shouldn't. Of course, he shouldn't.
       Chairman Helfer: He shouldn't what? I'm sorry.
       Mr. Thomas: He should not want to proceed in both forums. I 
     mean, it's--it's not economically rational, as I view the 
     world, but then again, the fact that he didn't sign the 
     tolling agreement is not, in my view, economically rational.
       Chairman Helfer: No. I think it--given the difficulty the 
     Board is having deciding to bring suit, it was quite 
     economically rational. He's clearly telling the Board to put 
     up or shut up, don't you think?
       Mr. Thomas: Oh, yeah. I--I--I have not discus--I never met 
     Mr. Hurwitz, but I think it's pretty clear that he views this 
     as a matter of calling our bluff, when you boil it down.
       Director Fiechter: My views on this were, in part, based on 
     the--just the math, the cost of proceeding versus what we 
     might collect. Are you suggesting there's a reasonably good 
     chance that we could agree to sue today but that, should OTS 
     proceed--decide to pursue this in a couple of months, and as 
     I understand it OTS would have a probably stronger case than 
     the FDIC, that the FDIC could then go slow or ask for a 
     dismissal with prejudice and that the FSLIC Resolution Fund 
     would therefore be no worse off than if the FDIC today 
     decided not to sue.
       Mr. Thomas: (Redacted by Committee on Resources.)
       Chairman Helfer: For a motion to dismiss?
       Mr. Thomas: Motion to dismiss and related--particularly if 
     we get into any kind of discovery.
       Chairman Helfer: Yes, but a motion to dismiss, I can see 
     the lower end of the range. A summary judgment motion I can 
     see the higher end of the range, or higher probably.
       Mr. Thomas: (Redacted by Committee on Resources.)
       Mr. Steinbrink: But the one thing that is certain is that 
     we have people who, in our opinion and the historical opinion 
     of the regulatory agencies, have done things that are unsafe 
     and unsound and have performed acts that we don't think are 
     appropriate and they've cost the FDIC $1.6 billion with these 
     acts--
       Mr. Thomas: The--the acts of these individuals during the 
     stew--well, this institution had equity capital of some 
     rather modest amount and if you took out the goodwill in 1983 
     before Hurwitz bought it, it would have been insolvent. Their 
     acts--their--under their control, this institution went from 
     being marginally insolvent to a [$]1.6 billion loss. Yes.
       Chairman Helfer: And you believe those acts constitute 
     gross negligence?
       Mr. Thomas: Yes.
       Chairman Helfer: Without question. I mean, it's the staff's 
     view that the facts support that these acts were grossly 
     negligent.
       Mr. Thomas: In terms of the claims we're--we're discussing 
     here, they lost a lot of money for other things. They were 
     the subject--they were the victim of fraud; they were the 
     victim of bad economy; they were a victim of a lot of other 
     things, but the things we propose to sue on we believe are 
     grossly negligent, yes.
       Director Fiechter: On my understanding that the--that to 
     the extent we find that the suit today is redundant and that 
     there is a good probability, but you can't guarantee, given 
     the lack of precedent, that the FDIC could avoid expending 
     funds that duplicate what the OTS might choose to do. But 
     you're hedging in that, if the OTS decides not to pursue in 
     two months, we leave open the option of the FDIC proceeding. 
     I'm willing to go with proceeding on--
       Chairman Helfer: My--my understanding is that the staff 
     would have no intention to duplicate litigation or litigation 
     costs with the OTS, to the extent the staff can control 
     that--
       Mr. Thomas: Certainly, we're--
       Chairman Helfer: --possibility--
       Mr. Thomas: --trying to avoid it today and we'll continue 
     to try to avoid it.
       Chairman Helfer: And the issue there simply is the court's 
     willingness to stay the proceeding.
       Director Fiechter: It's--it's your view that you can't come 
     up with a good reason why they wouldn't be willing to stay.
       Chairman Helfer: Well--I'm--I--
       Director Fiechter: And I just don't know--
       Chairman Helfer: --it--it's--
       Director Fiechter: --that much about the--
       Chairman Helfer: --dangerous--what is the saying, a fool--
     ``A lawyer seeking to be his own counsel has a fool for a 
     client.'' I recognize that, but I can't help but bring to 
     bear to this matter my own, somewhat limited, experience with 
     litigation and my own reading of more li--more--greater 
     experience at the appellate level in the Fifth Circuit, 
     admittedly with one of the sounder judges of the Circuit, 
     which are not unfortunately ones that we seem to come before. 
     So I have to bring that to bear. Obviously, I don't have the 
     range of experience of Mr. Thomas, so I would have to defer 
     to his advising the Board on legal matters.
       Mr. Thomas: Our expectation is that Hurwitz would not want 
     to proceed on two fronts, but there are no guarantees and he 
     is a person who has made it clear that he doesn't always do, 
     in any forum, what other people expect of him. It doesn't 
     make sense to want to spend the money in two places.
       Vice Chairman Hove: I guess I--I can appreciate what Steve 
     was pointing out that--that--that there are losses here and--
     and no question about--some of these people are--are not the 
     kind of people that you'd like to see in the financial 
     services industry and--and that they did some things that 
     weren't appropriate. And I guess we're doing it more on 
     principal--the--the principal of it. But--but the economics 
     of the thing still doesn't make sense. But, in the sense of 
     collegiality, if--if the Chairman is interested in having 
     this go forward, I'm willing to let it go forward.
       Chairman Helfer: I believe the court's unwillingness--let 
     me ask one more question, on Texas law. What does Texas law 
     say about adverse domination?
       Mr. Thomas: The truth is, the Fifth Circuit wrote on a 
     clean slate, for all practical purposes. There are--the Texas 
     courts' laws--the Texas court cases really don't say much of 
     anything. They simply said, well, this is what we think the 
     Texas courts would do. We asked, in one of our recent cases, 
     to have the Fifth Circuit certify something to the Texas 
     Supreme Court to answer the question. They declined.
       Chairman Helfer: That, of course, depends on the panel one 
     gets in the Fifth Circuit. One of the--at least one of the 
     virtues of this case might be to press that issue of how far 
     the adverse domination determination goes and whether one can 
     look to the sta--the continuing conduct after--let me state 
     it differently. If one can look to continuing conduct adverse 
     to the insured institution, even where the act that led to 
     that took place during the period which the court said the

[[Page E2489]]

     statute of limitations would bar, if that would essentially 
     allow the Fifth Circuit to ameliorate wha--what I personally 
     believe to be a gross disservice to insured institutions not 
     to recognize the principal of adverse domina--adverse 
     domination in this context. So--
       Mr. Thomas: I couldn't agree more.
       Chairman Helfer: Pardon?
       Mr. Thomas: I couldn't agree more.
       Chairman Helfer: So I have to say that my concern is we 
     have principals that have caused a $1.6 billion loss. We--to 
     the U.S. taxpayer. We have a judgment that, as to the claims 
     that we would bring, these individuals were not simply 
     negligent but grossly negligent as to the insured 
     institution. And we have the prospect of making claims that 
     might lead a different panel of the Fifth Circuit to make a 
     judgment that would ameliorate some of the grosser adverse 
     aspects of the previous Fifth Circuit decisions. I recognize 
     that, of course, a panel could simply follow suit. What 
     prospect--is there a split in the Circuits on this? Is there 
     two Circuits and they've gone essentially the same way?
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: But you're saying there are no Texas 
     Supreme Court decisions on point. So the Fifth Circuit is 
     essentially interpreting state law based on its own judgment 
     about state law.
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: Would there be a prospect that a different 
     panel of the Fifth Circuit might allow certification of the 
     issue?
       Mr. Thomas: (Redacted by Committee on Resources).
       Chairman Helfer: No, I understand.
       Mr. Thomas: --forum either, but it's--
       Chairman Helfer: I understand, but that at least--
       Mr. Thomas: ----worth a try.
       Chairman Helfer: --it sets a clear standard--
       Mr. Thomas: That's right.
       Chairman Helfer: --of what the state law is--
       Mr. Thomas: That's right.
       Chairman Helfer: --as opposed to the Fifth Circuit.
       Mr. Thomas: And we've had some successes, ``we'' in the 
     RTC. For example, in Maryland, the District Court certified a 
     matter to the Maryland Supreme Court. Everyone thought that 
     we would lose in Maryland and they came back and said, oh, no 
     adverse domination is the law in Maryland; a very favorable 
     decision. We have so--we have circuits going both ways but 
     they again are basically looking at state law.
       Chairman Helfer: Okay. There has been a motion to 
     reconsider the previous vote of the Board with respect to the 
     staff's recommendation to authorize the institution of a PLS 
     suit in the matter of United Savings Association of Houston, 
     Texas. Given that motion, I would now seek a new motion in 
     support of the staff's recommendation.
       Director Fiechter: I'll so move.
       Chairman Helfer: And a second.
       Mr. Steinbrink: I'll second it.
       Chairman Helfer: All in favor of the motion?
       Vice Chairman Hove: Aye.

                            Federal Deposit Insurance Corporation,
                                                   Washington, DC.


                             CERTIFICATION

       I, Leneta G. Gregorie, Counsel and Special Assistant to the 
     Executive Secretary, Office of the Executive Secretary, 
     Federal Deposit Insurance Corporation, do certify that the 
     attached is an excerpt taken from the Transcript of a Board 
     of Directors Meeting held on August 1, 1995 (Closed to Public 
     Observation).
           (SEAL)

                                           Leneta G. Gregorie,

                                    Counsel and Special Assistant,
                                       to the Executive Secretary.

                                  ____
                                  

                               Record 28

     Memorandum To: Alan Whitney, Director, Office of Corporate 
         Communications. Alice Goodman, Director, Office of 
         Legislative Affairs.
     From: Jeffrey Ross Williams, Counsel, Professional Liability 
         Section. Robert J. DeHenzel, Jr., Counsel, Professional 
         Liability Section.
     Subject: PLS Lawsuit Filed Today Against Charles Hurwitz.
       As you know, yesterday the FDIC Board of Directors 
     authorized the filing of a PLS suit against Charles E. 
     Hurwitz arising out of the failure of United Savings 
     Association of Texas (``USAT''), Houston, Texas. The FDIC's 
     complaint was filed this afternoon in the United States 
     District Court for the Southern District of Texas in Houston. 
     A copy of the complaint is attached for your reference.
       The complaint seeks damages against Hurwitz in excess of 
     $250 million and alleges claims for gross negligence, breach 
     of fiduciary duty and breach of the duty of loyalty arising 
     out of his own conduct and for aiding and abetting the 
     conduct of others who served as officers and directors of 
     USAT. The complaint alleges that Hurwitz dominated and 
     controlled USAT as a controlling shareholder, a de facto 
     senior officer and director and controlling person.
       Count I of the complaint alleges that Hurwitz breached his 
     fiduciary duty of loyalty to USAT by failing to ensure that 
     USAT's net worth was maintained by its parent company, United 
     Financial Group, Inc. (``UFG'') and by its controlling 
     shareholders MCO Holdings, Inc. (``MCO'' now known as Maxxam) 
     and Federated Development Corporation (``Federated''). Count 
     II of the complaint alleges that Hurwitz was grossly 
     negligent and breached his duty of loyalty to USAT in failing 
     to act to prevent additional losses from USAT's first 
     mortgage backed securities portfolio. Count III alleges that 
     Hurwitz was grossly negligent and breached his duty of 
     loyalty to USAT in causing USAT to invest substantial amounts 
     of mortgage backed securities in its subsidiary, United MBS, 
     resulting in substantial losses.
       As we informed the Board, this action will be highly 
     visible because Hurwitz and USAT have attracted media 
     coverage and comment from environmental groups and members of 
     Congress. Hurwitz has a reputation as a corporate raider, and 
     his hostile takeover of Pacific Lumber attracted enormous 
     publicity and litigation because of his harvesting of 
     California redwoods. Environmental interests have received 
     considerable publicity in the last two years, suggesting 
     exchanging our D&O claims for the redwood forest. We recently 
     met with representatives of the Department of the Interior 
     (``DOI''), who informed us that they are negotiating with 
     Hurwitz about the possibility of swapping various properties, 
     plus possibly the FDIC/OTS claim, for the redwood forest. 
     They stated that the Administration is seriously interested 
     in pursuing such a settlement. We plan to follow up on these 
     discussions with DOI in the coming weeks. All of our 
     discussions with DOI are strictly confidential.
       In response to numerous letters from the environmental 
     community and members of Congress about the possibility of 
     the FDIC pursuing a debt for nature swap, we have started 
     that:
       ``although such a swap almost certainly would raise 
     numerous difficult questions, if Maxxam could be held liable 
     for USAT's losses, and if such a swap became an option, the 
     FDIC would consider it as one alternative and would 
     conscientiously strive to resolve any pertinent issues.''
       If you are asked specifically about this issue, we believe 
     there is no reason to deviate from this position.
       Please do not hesitate to contact Jeffrey Williams, at 736-
     0648, or Bob DeHenzel, at 736-0685 if you have any questions 
     whatsoever.

                                  ____
                                  

                               Record 29

                            8/15/95--Hurwitz

       Alan McReynolds and Larry Millinger--Interior 208-6172
       Jeff Webb, Interior, Land acqui
       K Zeigler, Fish and Wildlife
       OTS--Rick Sterns, Bruce Rinaldi
       California Delegation wrote Interior for creative 
     suggestions as to how to acquire the redwoods.
       Rick--OTS--can't really discuss their claims--policy to be 
     quiet
       Alan--Hurwitz lawyers
       Terry Gorton--Rep of Calif
       Gov's office--Spec Asst to Sec of Natural Resources.
       Strategy--a fund of property owned by state to sell or 
     trade--70 to 100 m. feels deal can be cut $150 to 250 m.
       Hurwitz' lawyers said the $500 m appraisal should not be an 
     obstacle for price/deal.
       Obstacles to logging:
       Presidential ambitions of Wilson--complicates matters for 
     Interior.
       Interior doesn't have surplus property to put on table.
       16 bases in Calif to be closed could chop off a piece or 
     pieces
       H told Terri he would take Grand Prairie Tex Naval Air 
     Station.
       Should Interior go visit DOJ and see about acquiring 
     property.
       Rick says nothing here will influ OTS decision to bring an 
     action.
       Rick--FDIC will prob have to go thru a round of motions.
       JDS says we would sit at a global settlement table. Dirs 
     briefed--no objection stated.
       Alan--fear of sending wrong messg by pursuing this at all.
       RTC has approached Interior.

                                  ____
                                  

                               Record 30

                            Federal Deposit Insurance Corporation,
                                 Washington, DC, November 6, 1995.
     MEMORANDUM TO: Kathleen McGinty, Chairperson, Council on 
         Environmental Quality, Executive Office of the President.
     FROM: Jack D. Smith, Deputy General Counsel, Federal Deposit 
         Insurance Corporation.
     SUBJECT: Headwaters Forest/Charles Hurwitz, Debt-for-Nature 
         Transaction.
       At a meeting in your office on October 22, 1995, you 
     requested an analysis of certain issues pertaining to the 
     viability of obtaining a transfer of the Headwaters Forest 
     from Pacific Lumber ( a corporation controlled by Charles 
     Hurwitz) to the United States.
       This memorandum states the issues and summarizes the 
     answers. More detailed responses are attached. These 
     responses were prepared by representatives of the Federal 
     Deposit Insurance Corporation, the Office of Management and 
     Budget, and the Department of the Interior.
     Issues and Answers
       Issue 1: It is feasible for Hurwitz to transfer the 
     Headwaters Forest to the FDIC in exchange for a settlement of 
     the FDIC's lawsuit and/or other assets?

[[Page E2490]]

       Answer: Yes. While Hurwitz does not directly own the 
     Headwaters Forest, he controls the boards of directors and 
     the business decisions of the corporate entity that owns the 
     land. Hurwitz is the majority stockholder of Maxxam, Inc. 
     which, through its wholly owned subsidiaries, owns the 
     Headwaters Forest. He is also the Chairman of the Board of 
     Directors, President and Chief Executive Officer of Maxxam 
     and through these capacities has controlled the business and 
     financial decisions of Maxxam and its subsidiaries. Most 
     important, the FDIC lawsuit against Hurwitz may well 
     ultimately be a liability of Maxxam because Maxxam's bylaws 
     contractually obligate it to indemnify Hurwitz for liability 
     in connection with acts performed while serving in any 
     capacity on a Maxxam subsidiary such as United Savings 
     Association of Texas or its holding companies. Hurwitz, 
     through his control over Maxxam's and its subsidiaries' 
     boards of directors, has previously influenced the transfer 
     of Pacific Lumber's assets to resolve other liabilities, 
     including lawsuits. Finally, the FDIC's Chairman has stated 
     that in the event the Headwaters Forest is offered to the 
     FDIC as part of a settlement of the FDIC's claims against 
     Hurwitz, the FDIC Board of Directors would consider accepting 
     such assets to resolve the claims against Hurwitz.
       Issue 2: It is feasible for FDIC to transfer the Headwaters 
     Forest to the Department of the Treasury?
       Answer: The FDIC could legally transfer title to the 
     Headwaters Forest out of the FDIC's FSLIC Resolution Fund 
     (``FRF'') to Treasury, if the FDIC determined that the state 
     of the FRF at the time of transfer were such that the value 
     of the Headwaters Forest was not better retained in the fund 
     for discharge of FRF liabilities. It is unclear whether the 
     FDIC Board of Directors would be able to make the requisite 
     determination in the near term given uncertainties as to 
     contingent liabilities, although a plausible case might be 
     made in favor of such a determination in light of the present 
     condition of FRF's balance sheet. We note, too, that Treasury 
     would have to be willing to receive the Headwaters Forest (if 
     only as part of an instantaneous transfer on to the 
     Department of the Interior or another federal agency), and an 
     interagency memorandum of understanding would therefore seem 
     desirable in order to flesh out this plan. In the event that 
     the FDIC Board were unwilling in the near term to make the 
     requisite determination for a transfer to Treasury, a 
     feasible alternative might be for the FDIC as manager of the 
     FRF to hold the Headwaters Forest, under an interagency 
     agreement whereby it would be managed by the Department of 
     the Interior, until such time as conditions for a 
     determination for outright transfer to Treasury (and then on 
     to Interior) are satisfied.
       Issue 3: What legislative mechanisms exist that may 
     facilitate a transfer of the Headwaters Forest to the U.S. 
     Department of the Interior with minimal financial outlay?
       Answer: Three legislative authorizations provide a 
     mechanism for an inter-agency transfer of title to the 
     Headwaters Forest to the Department of the Interior. They are 
     The Transfer of Real Property Act; The Coastal Barriers 
     Improvement Act; and The Base Closure and Realignment Act of 
     1990. Each Act presents particular legal and political 
     considerations that require special consideration.
       Issue 4: What would be the likely budgetary impact from an 
     acquisition or transfer of the Headwaters Forest through the 
     FDIC?
       Answer: Any budgetary impact, including ``scoring,'' is 
     dependent on the particular structure of the transaction and 
     whether particular legislation is necessary to facilitate the 
     acquisition or transfer of the Headwaters Forest.
     Next Steps
       It appears appropriate to arrange a meeting as soon as 
     possible to decide upon what, if any, action is appropriate. 
     Hurwitz has recently signaled--both directly and through his 
     personal and corporate representatives--his desire to discuss 
     the Headwaters Forest with representatives of the Government. 
     For example, in a recent newspaper interview (attached), 
     Hurwitz endorsed the possibility of a transfer of the 
     Headwaters forest in exchange for assets of equivalent 
     economic value. Furthermore, in recent discussions with FDIC 
     after the publication of the interview, Hurwitz's lawyers 
     have indicated their client's interest in discussing a 
     resolution of the Headwaters Forest issue. Similar statements 
     have been made by other Hurwitz representatives to the 
     Department of the Interior.
       There appears to be little downside in responding to these 
     overtures at an early date. If everyone else agrees, it would 
     be necessary to decide the following:
       1. Which person(s) should be authorized to contact Hurwitz;
       2. Through which Hurwitz representative (e.g., Maxxam, 
     Pacific Lumber, Hurwitz's defense lawyers) should such 
     contact be made;
       3. The substantive authority of the negotiating person or 
     group for its discussions with Hurwitz; and
       4. A mechanism for the negotiating person or group to 
     regularly consult and coordinate its discussions with the 
     respective federal agencies and offices that are involved in 
     this effort.
       Please let me know if the FDIC can be of further 
     assistance. My phone number is (202) 898-3706 and William F. 
     Kroener, III, FDIC General Counsel, can be reached at 898-
     3680.
     Attachments.

                                  ____
                                  

                [From the Press Democrat, Oct. 22, 1995]

                     Pacific Lumber: 10 years after

                           (By Mike Geniella)

       Scotia.--Ten years after pulling off a nearly $1 billion 
     hostile takeover of Pacific Lumber Co., Texas Financier 
     Charles Hurwitz is seething because his most prized asset 
     remains off-limits.
       Hurwitz believes a continuing controversy about Headwaters 
     Forest, the largest stand of ancient redwoods left in private 
     hands--worth $600 million today by company estimates--not 
     only hinders business, but denies him and managers of the 
     127-year-old North Coast timber giant the recognition he 
     feels they deserve.
       ``We've stuck around for 10 years. We've re-invested $100 
     million in new facilities, added more *** and expanded our 
     timber base. We rebuilt *** town after an earthquake and 
     fire,'' said Hurwitz.
       ``And still we're the bad guys,'' he said. ``My God, the 
     way the critics beat the hell out of this company, you would 
     think we have slaves working there or something,'' complained 
     Hurwitz.
       In a rare interview, Hurwitz told The Press Democrat that 
     Pacific Lumber is willing to have an independent party 
     determine a value for Headwaters if that helps bring an end 
     to the North Coast's most tenacious environmental battle.
       Andy McLeod, spokesman for Secretary of Resources Douglas 
     Wheeler, welcomed Hurwitz's offer.
       ``Without doubt, determining a value for the forest is key 
     to finding solutions to the complexities surrounding 
     Headwaters,'' he said.
       However, McLeod said the state will not negotiate ``other 
     than directly with the parties involved.''
       ``Any further discussion on any value for Headwaters will 
     have to be done directly,'' he said.
       Epic court fights, regulatory skirmishing and disputes over 
     its value, have kept company chainsaws from cutting 
     Headwaters' 3,000 acres of towering redwoods, some dating 
     back to the time of Christ.


                          Different appraisals

       Pacific Lumber contends Headwaters' fair market value is 
     nearly $600 million, but government appraisals have ranged as 
     low as $400 million. Because of normal regulatory constraints 
     surrounding harvesting of old-growth trees, preservation 
     proponents say Headwaters' true value is much less, perhaps 
     around $200 million.
       Whatever value may be set, Hurwitz said he doesn't 
     necessarily expect taxpayers to come up with that kind of 
     cash. He once again said he would favor offsetting some of 
     the cost by swapping the big trees for abandoned U.S. 
     government property.
       ``You know, if I could get someone who was very serious 
     about resolving this, and who had some authority, to sit down 
     with me, I think we could work out a Headwaters solution in 
     half a day,'' said Hurwitz.
       Hurwitz warned, however, that a deal needs to be struck 
     soon. He said he believes a Republican majority in Congress, 
     and its zeal for private property rights, creates a better 
     political climate for Pacific Lumber's efforts to either be 
     fairly compensated for Headwaters, or be allowed to log the 
     swath of old trees tucked in the coastal ridges east of 
     Fortuna.
       ``I want to tell you that this is America, and that this 
     land is zoned for timber cutting,'' said Hurwitz defiantly.
       ``We are going to move forward. Somebody is going to pay us 
     fair market value, or we're going to cut it. And we're not 
     embarrassed to say that,'' he said. A federal court recently 
     has put on hold company plans to remove dead or dying trees 
     from Headwaters pending trial of the latest in a series of 
     lawsuits filed by the grass-roots group Environmental 
     protection Information Center in Garberville.


                            Deal of century

       Departing from his usual stance of no interviews, Hurwitz 
     spoke for nearly an hour by phone from a Puerto Rico resort 
     being developed by his Houston-based Maxxam Inc. The 
     conglomerate also owns Kaiser Aluminum, and substantial real 
     estate holdings nationwide. The conference call interview 
     included Pacific Lumber President John Campbell, who was a P-
     L executive before the Hurwitz takeover.
       Hurwitz talked freely about controversies that erupted 
     after Pacific Lumber's old board of directors capitulated 10 
     years ago today, and voted to sell the aristocrat of West 
     Coast timber companies to Maxxam. It became the timber deal 
     of the century because Pacific Lumber's under-valued assets 
     were probably worth closer to $2 billion, according to 
     estimates in some shareholder lawsuits filed to the aftermath 
     of the Hurwitz takeover.
       At the time of Hurwitz's takeover, Pacific Lumber was 
     touted by the Sierra Club and Save the Redwoods League for 
     its responsible logging practices. Generations of Humboldt 
     County residents have worked for Pacific Lumber and lived in 
     Scotia, the West's last real mill town. Until the takeover, 
     they were comforted by a paternalistic management that gave 
     them a lifestyle once characterized as ``Life in the Peace 
     Zone.''
       Pacific Lumber's buyout by an outsider was a stunning 
     development for hundreds of workers and their families, and a 
     region that depends on the company for its economic well-
     being. The takeover ignited a decade of environmental 
     activism in the streets and in the courts, and reshaped the 
     face of North Coast politics. Logging controversies have 
     played a role in almost every major election since the 
     takeover.

[[Page E2491]]

       In the beginning, Hurwitz was largely unknown. At the time, 
     he was a small-time inventor with alleged ties to convicted 
     Wall Street wheeler-dealers Michael Millken and Ivan Boesky, 
     and a failed Texas savings and loan that cost taxpayers $1.6 
     billion. Today his personal portfolio is worth an estimated 
     $180 million.
       After snagging sleepy Pacific Lumber for $800 million 
     during the takeover craze of the 1980s. Hurwitz ordered the 
     cut doubled to meet the company's cash flow needs, and pay up 
     to $90 million a year in interest payments on about $550 
     million in junk bonds he used to finance the takeover. 
     Hurwitz later was to use early profits from Pacific Lumber's 
     accelerated cut to help fund a takeover of another venerable 
     Northern California industrial giant, Kaiser Aluminum.
       As his empire grew, Hurwitz was attacked as a ruthless 
     raider whose targets, including Pacific Lumber, were asset-
     rich companies. His dealings involving Pacific Lumber came 
     under scrutiny by the Securities and Exchange Commission, 
     the U.S. Labor Department and a congressional oversight 
     committee, none of which took any action. A probe by the 
     Federal Deposit Insurance Corp, into Hurwitz's role in a 
     failed Texas savings and loan resulted in a $250 million 
     claim being filed against him.


                          Accusations not true

       Hurwitz dismissed his critics.
       ``Their accusations are just not true, and anybody who will 
     spend the time looking into them will find that out,'' said 
     Hurwitz.
       Soon after the Pacific Lumber takeover Hurwitz ordered the 
     sale of a tool company subsidiary of Pacific Lumber for $300 
     million. He sold Pacific Lumber's former San Francisco 
     headquarters building for another $30 million, moving all 
     corporate operations to Scotia and fueling speculation he 
     intended to dismantle the timber giant and sell all of its 
     assets. Critics predicted Scotia would be a ghost town within 
     10 years.
       Hurwitz said the years have proven the critics wrong.
       ``We're still here, and we're still growing,'' he said.
       Hurwitz said his rogue image is a carryover from the 1980s, 
     ``When everybody who did takeover was cast in a bad light. 
     But contrary to a lot of those kind of people, we're 
     builders. We're happy with our investments.''
       Still his reputation persists.
       ``I warned Hurwitz early on that his takeover of Pacific 
     Lumber would become the absolutely perfect symbol of what 
     everyone doesn't like about American business,'' recalled 
     former Rep. Doug Bosco, D-Sebastopol. After his defeat to 
     Rep. Frank Riggs, R-Windsor, Bosco for a year was paid 
     $15,000 a month by Hurwitz to try to forge a consensus in 
     Congress, where a bill had been introduced for the public 
     acquisition of Headwaters.
       Those efforts failed, and so have a series of others in the 
     state Legislature and at the federal level.
       Hurwitz said he's disgusted with the political ``circus.'' 
     He recalled in 1988 when he went to Sacramento with Bosco, 
     who was then still a congressman, to meet with key 
     legislative leaders. They asked Hurwitz to agree to a 
     voluntary logging moratorium on Headwaters, an agreement 
     Pacific Lumber stuck to until this year, when Hurwitz said 
     he'd had enough.


                            Nothing happened

       ``I was told by these guys that they were going to step in 
     and solve this issue,'' said Hurwitz. ``But they didn't do a 
     damn thing. We sat around for two years twiddling our thumbs 
     waiting for something to happen, and nothing ever did.''
       Bosco said he no longer has any ties to Hurwitz, or Pacific 
     Lumber. But he said he agrees with Hurwitz that most of the 
     blame for the Headwaters statement is with the political 
     process.
       ``It should have been resolved in the public arena, but it 
     wasn't,'' said Bosco.
       Hurwitz said the bad rap he and Pacific Lumber receive 
     about wanting to log the last of the ancient redwoods in 
     private ownership is unfair.
       ``I get all these letters every day from high school and 
     junior high kids saying, `Please don't cut down the 
     Headwaters,''' said Hurwitz.
       ``I write them back and give them our version of this 
     thing, and then I tell them they should write their senators, 
     write the Congress, and write the president if they want to 
     save the Headwaters,'' he said.
       Hurwitz rejected environmentalists' clamor for a so-called 
     ``debt-for-nature'' swap involving a $250 million claim a 
     federal agency has filed against the Houston investor for his 
     alleged role in the collapse of United Savings and Loan 
     Association of Texas.
       Hurwitz contended the Federal Deposit Insurance Corporation 
     claims is in the form of a personal lawsuit against him, and 
     cannot be linked to Maxxam or Pacific Lumber operations.


                               Land swap

       The possibility of swapping Headwaters for surplus 
     government property dominated Hurwitz's thoughts during the 
     interview.
       Hurwitz cited as an example a closed military base in Texas 
     between Galveston and Houston, where he lives.
       ``It's 15,000 acres of land, and it's doing nothing but 
     drawing dust and rattlesnakes. Wouldn't it be great if 
     someone like ourselves took it over and built new homes and a 
     shopping center and created new jobs rather than have this 
     land just sit there and do nothing?''
       Hurwitz described such a possibility as a ``win-win for 
     everyone.''
       ``Everyone thinks we're the stumbling block (to a 
     Headwaters solution), and that's just not the case,'' said 
     Hurwitz.
       Hurwitz insisted the future is bright for Pacific Lumber.
       Pacific Lumber, whose annual sales top $20 million, is not 
     for sale despite Wall Street Journal reports earlier this 
     summer to the contrary, said Hurwitz.
       Hurwitz said in fact, Pacific Lumber under Campbell's 
     guidance is looking to the North Coast, and around the globe 
     to expand its timber operations.
       ``We've been to South America, Africa and even Russia,'' he 
     said.
       ``We're builders. We don't buy and sell,'' said Hurwitz 
     about Maxxam's investment strategies.
       Hurwitz said he likes the timber business. ``Just last 
     week, we had discussions about a potential acquisition within 
     the industry,'' he said. ``We're very much in the growth 
     mode,'' said Hurwitz.
       Hurwitz said he's offended that Pacific Lumber has been 
     cast as an environmentally insensitive company under his 
     stewardship.
       ``What bothers me more than anything else is that people 
     think we're hurting the environment. It's simply not the 
     case. We've hired the best foresters, the best biologists to 
     chart the company's course into the next century,'' said 
     Hurwitz.
       Hurwitz and Campbell said Pacific Lumber's timberlands, 
     even after a decade of accelerated cutting, still have the 
     most timber volume per acre than anywhere else in California, 
     and perhaps Oregon and Washington. They said the company will 
     be able to sustain current production and job levels 
     indefinitely by acquiring more timberland, and developing new 
     product lines.
       ``But that isn't what you hear on the streets, or read in 
     the newspapers,'' said Hurwitz. ``I've had people tell me 
     they went to Scotia expecting to see a Palm Springs; no trees 
     and all sand. They were amazed to see forests everywhere they 
     looked.''

                            Charles Hurwitz

       Age: 65
       Born: 1940, Kilgore, Texas
       College: University of Oklahoma
       Career: Started work as a stockbroker for Bache & Co. in 
     1952 in New York, later San Antonio.
       First deal: At age 27, Hurwitz got investors to put up $54 
     million to launch the Hedge Fund of America. In 1967, it was 
     the second-largest public offering ever on Wall Street.
     The Hurwitz Decade:
       May 1982: Hurwitz's MCO Holdings and Federated Development 
     buy Simplicity Pattern Co. for $48 million, and later change 
     name to Maxxam.
       October 1985: Pacific Lumber board capitulates, and agrees 
     to sell North Coast timber giant to Hurwitz.
       May, 1988: Maxxam acquires Kaiser Tech. corporate parent of 
     Kaiser Aluminum for about $930 million.
       December 1988: Another Hurwitz Investment--United Savings 
     Association of Texas--fails, eventually costing taxpayers 
     $1.6 billion.
       July 1992: Maxxam bids $350 million for a controlling 
     interest in Continental Airlines, but offer rejected.

                                  ____
                                  

       ISSUE 1. IS IT LEGALLY FEASIBLE FOR CHARLES HURWITZ TO 
     ARRANGE THE TRANSFER OF MAXXAM'S ASSETS SUCH AS THE 
     HEADWATERS FOREST TO THE GOVERNMENT IN EXCHANGE FOR A 
     SETTLEMENT OF THE FDIC LAWSUIT AND/OR OTHER ASSETS?
       SHORT ANSWER: YES. BY HIS DOMINANT POSITION AS MAXXAM, 
     INC.'S CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE 
     OFFICER, AND AS ITS MAJORITY (60%) STOCKHOLDER, HURWITZ 
     CONTROLS MAXXAM AND PACIFIC LUMBER (a wholly owned subsidiary 
     of MAXXAM, INC.) AND THE BUSINESS DECISIONS OF THEIR BOARDS 
     OF DIRECTORS. THROUGH HIS POSITIONS, HURWITZ CAN ARRANGE FOR 
     MAXXAM TO EXCHANGE ITS PROPERTY FOR OTHER ASSETS AND/OR THE 
     DISCHARGE OF MAXXAM LIABILITIES. THE FDIC LAWSUIT AGAINST 
     HURWITZ MAY WELL ULTIMATELY BE A LIABILITY OF MAXXAM BECAUSE 
     MAXXAM'S BYLAWS OBLIGATE IT TO INDEMNIFY HURWITZ FOR 
     LIABILITY IN CONNECTION WITH ACTS PERFORMED WHILE SERVING IN 
     ANY CAPACITY ON A MAXXAM SUBSIDIARY SUCH AS UNITED SAVINGS 
     ASSOCIATION OF TEXAS OR ITS HOLDING COMPANIES. MOREOVER, IF 
     THE OTS BRINGS CHARGES AGAINST MAXXAM DIRECTLY THIS WOULD 
     ALSO BECOME A MAXXAM LIABILITY. (Answer prepared by FDIC).
       DISCUSSION ANSWER:
     I. Hurwitz's Control of Pacific Lumber
       Hurwitz controls Pacific Lumber's corporate activities, 
     including a sale or transfer of its assets, through his 
     equity ownership in and domination of the board of directors 
     of Maxxam, Pacific Lumber's parent corporation.
       a. Hurwitz's Control of Maxxam
       1. Controlling Stockholder: Hurwitz and various family 
     interests own a controlling block of stock in Maxxam. Hurwitz 
     and his family currently own and control, directly and 
     through wholly owned personal and family

[[Page E2492]]

     investment companies and trusts, approximately 60.4 percent 
     of the voting stock interests of Maxxam. Through this 
     majority stock ownership, Hurwitz controls the election of 
     candidates to Maxxam's board of directors and the financial 
     and business decisions of Maxxam and its numerous wholly 
     owned subsidiaries, including Pacific Lumber.
       2. Controlling Director and Officer: Hurwitz is Maxxam's 
     Chairman of the Board, President, and Chief Executive 
     Officer, and has held these positions since he acquired 
     Maxxam.
       b. Maxxam's Control of Pacific Lumber. Maxxam is engaged in 
     forest products operations through its wholly owned 
     subsidiary, Maxxam Group, Inc. (``MGI''), and MGI's wholly 
     owned subsidiary, Pacific Lumber Company, which Hurwitz 
     acquired in a hostile tender offer in October 1985. Pacific 
     Lumber owns, either in its own name or through subsidiaries, 
     approximately 189,000 acres of commercial timberlands in 
     Humboldt County in northern California.
       1. 179,000 acres of Pacific Lumber's timberlands, including 
     approximately 6,000 acres of virgin old growth redwood and 
     border areas known as the Headwaters Forest, have been 
     transferred to Scotia Pacific Holding Company, a wholly owned 
     subsidiary of Pacific Lumber.
       2. Title in the Headwaters Forest was in turn transferred 
     to Salmon Creek Corporation, a wholly owned subsidiary of 
     Scotia Pacific. Salmon Creek's only asset is the Headwaters 
     Forest; it has been reported that the debt and other 
     liabilities undertaken in connection with Hurwitz's 
     acquisition of Pacific Lumber were maintained with Pacific 
     Lumber and were not transferred to Salmon Creek. Moreover, 
     Hurwitz has deliberately avoided pledging any part of the 
     Headwaters Forest timber as collateral for Pacific Lumber's 
     or its subsidiaries' financing arrangements, thereby making a 
     transfer of title to the Headwaters Forest from Salmon Creek 
     to the U.S. relatively easier.
       c. Hurwitz's Ability to Transfer Pacific Lumber's Assets: 
     Hurwitz has demonstrated his ability to control the actions 
     of the board of directors of Maxxam, Pacific Lumber, and its 
     subsidiaries in connection with the resolution of claims 
     against the assets of Maxxam, Pacific Lumber, and other 
     subsidiaries. Through his domination of Maxxam's board of 
     directors, Hurwitz has influenced the financial and business 
     decisions of Pacific Lumber and its two subsidiaries, Scotia 
     Pacific and Salmon Creek. After the acquisition of Pacific 
     Lumber, numerous lawsuits were filed against Hurwitz, Pacific 
     Lumber, Maxxam, MGI, and others involving Hurwitz's tender 
     offer and hostile takeover of Pacific Lumber. In November 
     1994, Hurwitz attended a conference in U.S. District Court, 
     Southern District of New York, where the consolidated cases 
     were pending. As a result of that meeting, Hurwitz, acting on 
     behalf of Pacific Lumber, Maxxam, and other Maxxam 
     subsidiaries, agreed to settle the cases for $52 million, 
     with $14.8 million paid by Pacific Lumber, $33 million paid 
     by insurance carriers of Pacific Lumber, Maxxam and MGI, and 
     the balance from other defendants. See, Maxxam, Inc. 10-K, 
     December 31, 1994. Moreover, two weeks ago Hurwitz said he 
     could ``work out a Headwaters solution in half a day'' if 
     he could get the government to talk to him.
     II. Maxxam May Well Ultimately Be Obligated to Indemnify 
         Hurwitz for FDIC Lawsuit
       a. Maxxam's indemnification provisions are contained in the 
     amended Bylaws dated August 1, 1988, and provide indemnity to 
     ``each person who is or was a director or officer [of Maxxam] 
     . . . at any time on or after August 1, 1988, . . . by reason 
     of the fact that he or she is or was a director, officer, 
     employee or agent . . . or is or was at any time serving at 
     the request of [Maxxam], any other corporation . . . or other 
     enterprise in any capacity, against all expenses, liability 
     and loss . . .'' Maxxam refers to these indemnification 
     obligations in connection with a description of the FDIC 
     lawsuit against Hurwitz in its most recent SEC filing, 
     stating that Hurwitz has not yet made a formal claim for 
     indemnification from Maxxam. See, Maxxam, Inc. 10-Q, June 30, 
     1995.
       b. Although Hurwitz was not an elected director of United 
     Savings Association of Texas (``USAT''), and Hurwitz--not 
     Maxxam--is a defendant in the FDIC's lawsuit, the suit 
     alleges that Hurwitz was a ``de facto'' director of the 
     thrift through his assertion of actual control over its 
     operations and decisionmaking, that he was an elected board 
     member of United Financial Group (``UFG'') (USAT's first-tier 
     holding company), and was a member of the joint USAT/UFG 
     Strategic Planning Committee.
       c. Moreover, the FDIC's suit alleges that Hurwitz breached 
     his fiduciary duty to USAT by placing his and Maxxam's 
     financial interests above the interests of USAT and its 
     depositors by choosing to refuse to cause Maxxam to infuse 
     new capital into USAT, as was required by a capital 
     maintenance agreement with the Federal Home Loan Bank Board, 
     that would have replenished USAT's depleted capital.
       d. Maxxam currently possesses sufficient assets to pay a 
     substantial liability, including indemnifying Hurwitz for the 
     amount of a judgment or settlement. Maxxam is a publicly 
     traded company with market capitalization of $233 million and 
     total assets of $3.7 billion. See, Maxxam, Inc. 10-Q, June 
     30, 1995.
     III. Related Litigation Which Could be Settled in a Global 
         Settlement With Hurwitz
       In addition to the FDIC's lawsuit, there are at least three 
     other lawsuits which have value and could be exchanged in a 
     global settlement involving the Headwaters Forest.
       a. In early 1994, Robert Martel, a private citizen, 
     supported and funded by numerous environmental organizations, 
     filed a lawsuit against Hurwitz, Maxxam, and other persons 
     and entities that alleges that Hurwitz illegally used USAT 
     funds for the benefit of himself and Maxxam, and that such 
     transactions diverted money from USAT and resulted in its 
     insolvency. The complaint seeks damages against Hurwitz, 
     Maxxam, and others under the False Claims Act which 
     authorizes a damage award of three times the alleged actual 
     damages of $250 million.
       b. The Office of Thrift Supervision, a department of the 
     Treasury, has been investigating the conduct of Hurwitz, 
     other former USAT directors and officers, Maxxam and other 
     USAT holding companies. On November 1, 1995, OTS notified 
     Hurwitz, Maxxam and other potential respondents of its 
     intention to file claims against them in early December 1995. 
     An OTS suit is likely to include a direct claim against 
     Maxxam and may seek monetary damages that exceed $350 
     million.
       c. Pacific Lumber has been unable to reduce the substantial 
     debt Hurwitz burdened it with as a result of his successful 
     takeover effort. The company is in need of cash to service 
     its operations. As harvestable timberland, the virgin old 
     growth redwoods that comprise the Headwaters Forest are among 
     Pacific Lumber's most valuable assets. To date, however, 
     Pacific Lumber has been unable to log these trees, and has 
     suffered financially as a result. In addition to numerous 
     lawsuits filed by various environmental organizations against 
     Pacific Lumber that prevented the logging of the virgin old 
     growth trees over the last few years, a temporary restraining 
     order was recently granted further prohibiting Pacific Lumber 
     from harvesting in the Headwaters Forest. As a result, the 
     cash starved company continues to lose its best source of 
     income.
       ISSUE 2: IS IT FEASIBLE FOR FDIC TO TRANSFER THE HEADWATERS 
     FOREST TO TREASURY?
       SHORT ANSWER: THE FDIC COULD LEGALLY TRANSFER TITLE TO 
     HEADWATERS FOREST FROM THE FSLIC RESOLUTION FUND (``FRF'') TO 
     TREASURY IF THE FDIC DETERMINED THAT THE STATE OF THE FRF AT 
     THE TIME OF TRANSFER WERE SUCH THAT THE VALUE OF HEADWATERS 
     FOREST WAS NOT BETTER RETAINED IN THE FRF FOR DISCHARGE OF 
     FRF LIABILITIES. A CASE COULD BE MADE IN FAVOR OF SUCH A 
     DETERMINATION AT PRESENT, ALTHOUGH THE FDIC BOARD OF 
     DIRECTORS MIGHT PREFER TO FOSTER ALL FRF ASSETS IN VIEW OF 
     CONTINGENT LIABILITIES. ABSENT SUCH A DETERMINATION, AN 
     ALTERNATIVE MIGHT BE FOR THE FDIC TO HOLD THE HEADWATERS 
     FOREST FOR THE TIME BEING, UNDER MANAGEMENT BY THE DEPARTMENT 
     OF THE INTERIOR. (Answer prepared by FDIC).
       DISCUSSION ANSWER:
       Assuming a settlement of professional liability claims in 
     which the Headwaters Forest is transferred from a Hurwitz-
     related company to the FDIC as manager of the FSLIC 
     Resolution Fund (``FRF''), the question becomes how best to 
     then transfer the redwood forest from the FDIC to another 
     agency with an ultimate view toward dedicating it to 
     wilderness purposes for the benefit of the United States. We 
     believe that the most efficient way of doing this--and 
     perhaps the only way with a clear enough legal framework not 
     requiring new legislation--would be for the FDIC to transfer 
     Headwaters out of the FRF to Treasury, utilizing unique 
     authority existing under the FRF enabling statute, and for 
     Treasury thereafter to transfer the forest to the Department 
     of the Interior or other federal agency pursuant to other, 
     more general statutory authority concerning inter-agency 
     transfers of property.
       With regard to transfer out of the FRF, it should be noted 
     that section 11A(f) of the FDI Act, 12 U.S.C. Sec. 1821a(f), 
     provides that the FRF ``shall be dissolved upon satisfaction 
     of all debts and liabilities and sale of all assets. Upon 
     dissolution any remaining funds shall be paid into the 
     Treasury.'' Treasury is thus, in effect, the residual 
     beneficiary of the FRF--a fund which is supported by 
     appropriated monies from Treasury (see section 11A(c) of the 
     FDI Act, 12 U.S.C. Sec. 1821a(c)), and which logically (as 
     well as statutorily) should therefore go back into Treasury. 
     To date approximately $46 billion has been appropriated to 
     support the FRF and it is only equitable that any funds 
     remaining be returned to the Treasury. Furthermore, although 
     section 11A(f) by its terms speaks of FRF funds going to 
     Treasury only upon FRF dissolution, the entire statutory 
     framework of the FRF has previously been interpreted to allow 
     the return of FRF funds to Treasury under appropriate 
     circumstances prior to such dissolution. In particular, as 
     stated in another context:
       ``it may asserted generally that Congress could not have 
     intended for excess funds to remain indefinitely in the FRF 
     in the event that the FDIC as manager were to determine in 
     later years that the amount of such funds exceeded the FRF's 
     needs estimated as of that time--especially since any 
     liabilities unpaid by the FRF as a result of an early 
     transfer to the Treasury would have to be

[[Page E2493]]

     satisfied by subsequent appropriations for which an 
     authorization of appropriations is provided in Sec. 11A(c) of 
     the FDI Act.''
     FDIC Memorandum, dated October 5, 1995, from Henry R. F. 
     Griffin, Assistant General Counsel, through William F. 
     Kroener, III, General Counsel, to William A. Longbrake, 
     Deputy to the Chairman & Chief Financial Officer.
       Thus, if the FDIC as manager of the FRF were to conclude at 
     any time that the amount of assets in the FRF exceeds the 
     FDIC's then estimate of FRF liabilities, the amount of such 
     excess or any portion thereof could be turned over to 
     Treasury prior to dissolution of the FRF. (We stress, 
     however, that any such early transfer out of the FRF would be 
     within the FDIC's sole discretion.) Furthermore, although the 
     statute speaks in terms of FRF funds going back to Treasury, 
     and the previous opinion concerned FRF funds, we do not 
     perceive a legal bar to the FDIC's making an early transfer 
     of FRF assets in kind (such as Headwaters, if it were 
     obtained by the FRF in settlement with (Hurwitz), provided 
     the other conditions for an early transfer were satisfied.
       This approach would have the decided advantage, from the 
     FDIC's viewpoint, of avoiding the necessity for the FDIC to 
     liquidate the Headwaters Forest at its fair market value. So 
     long as the FDIC had obtained fair value from Hurwitz and 
     related companies in return for settlement of its 
     professional liability lawsuit (i.e., assuming the estimated 
     value of the Headwaters Forest would exceed the FDIC's 
     settlement value of the case), then the FDIC could hand the 
     property over to Treasury without any question as to whether 
     the FDIC had fulfilled its fiduciary duty of maximizing 
     (Headwaters) value to the FRF. Treasury as ``residual 
     beneficiary`` could itself maximize that value, applying 
     its own policy and other judgments to the matter--
     presumably by effecting a further transfer to the 
     Department of the Interior or another federal agency for 
     wilderness preservation purposes to the ultimate benefit 
     of the United States.
       In short, the FDIC could legally transfer title to the 
     Headwaters Forest out of the FRF to Treasury, if the FDIC 
     determined that the state of the FRF at the time of transfer 
     were such that the value of Headwaters was not better 
     retained in the FRF for discharge of FRF liabilities. We 
     believe that a plausible case for such a determination may be 
     possible at present or in the foreseeable future, given that 
     the FRF currently has assets and appropriated funds in excess 
     of its liabilities. However, there can be no assurance that 
     the FDIC Board of Directors would be willing to make the 
     requisite determination given uncertainties as to contingent 
     liabilities of the FRF. We note, too, that Treasury would 
     have to be willing to receive the Headwaters Forest (if only 
     as part of an instantaneous transfer on to the Department of 
     the Interior or another federal agency), and an inter-agency 
     memorandum of understanding would therefore seem desirable in 
     order to flesh out this plan.
       Finally, it is crucial to this approach that Treasury, as 
     residual beneficiary of the FRF and standing in lieu of 
     taxpayers of the United States, will have to make the 
     assessment (in consultation with other appropriate Federal 
     governmental entities) that transferring the Headwaters 
     Forest for the contemplated purposes is, as a policy and 
     legal matter, the right thing to do, all factors considered. 
     This assessment amounts to a judgment call as to the relative 
     value of preserving the Headwaters Forest for wilderness 
     purposes as opposed to settling the claim against Hurwitz for 
     cash in order to reduce the federal deficit to that extent. 
     It is not in any event for the FDIC to make that assessment, 
     although if the assessment is made in favor of Headwaters 
     Forest preservation, the FDIC may assist in its 
     implementation by the means discussed above.
       ISSUE 3: WHAT LEGISLATIVE MECHANISMS EXIST THAT MAY 
     FACILITATE A TRANSFER OF THE HEADWATERS FOREST TO THE U.S. 
     DEPARTMENT OF THE INTERIOR WITH MINIMAL FINANCIAL OUTLAY?
       SHORT ANSWER: THREE LEGISLATIVE AUTHORIZATIONS PROVIDE A 
     MECHANISM FOR AN INTER-AGENCY TRANSFER OF TITLE TO THE 
     HEADWATERS FOREST TO THE DEPARTMENT OF INTERIOR. THEY ARE THE 
     TRANSFER OF REAL PROPERTY ACT; THE COASTAL BARRIERS 
     IMPROVEMENT ACT; AND THE DEFENSE BASE CLOSURE AND REALIGNMENT 
     ACT OF 1990. EACH ACT PRESENTS PARTICULAR LEGAL AND POLITICAL 
     CONSIDERATIONS THAT REQUIRE SPECIAL CONSIDERATION. (Answer 
     prepared by the Department of the Interior).
       DISCUSSION ANSWER:
       There are three specific legislative authorizations which 
     permit acquisitions of real property through a transfer from 
     Federal Agencies to the U.S. Department of the Interior at no 
     cost, at less than Fair Market Value, or with special 
     considerations. These provisions could possibly assist in the 
     acquisition of Federal properties to support a land exchange 
     with Maxxam Corporation for the Headwaters Forest lands.
     The Transfer of Real Property Act (16 U.S.C. Sec. 667b)
       This statute allows real property, which is no longer 
     required by the agency exercising jurisdiction over the 
     property, to be transferred to state wildlife agencies for 
     wildlife conservation purposes or to the Secretary of the 
     Interior in instances where the property has particular value 
     in carrying out the national migratory bird management 
     program. If the Administrator of General Services determines 
     that such real property is available for conservation 
     purposes then he may, notwithstanding any other provisions of 
     law, transfer said property ``without reimbursement or 
     transfer of funds'' to a state or the Department of the 
     Interior as appropriate.
     The Coastal Barrier Improvement Act (Pub. L. 101-591, 
         Sec. 10)
       Section 10 of the Coastal Barrier Improvement Act, 12 
     U.S.C. Sec. 1441a-3 et seq., provides that certain 
     ``covered'' properties held by the Resolution Trust 
     Corporation (RTC) or the Federal Deposit Insurance 
     Corporation (FDIC) cannot be sold or transferred by those 
     agencies until notice of availability is made in the Federal 
     Register, and the opportunity is given for a Federal Agency 
     or ``qualified organization,'' to submit a serious letter of 
     intent to acquire the property for the purpose of preserving 
     it for wildlife refuge, sanctuary, open space, recreational, 
     historical, cultural, or natural resource conservation 
     purposes. Covered properties include those which the RTC, 
     FDIC or former Federal Savings and Loan Insurance Corporation 
     (FSLIC) have acquired in their corporate capacity and that is 
     either located within the Coastal Barrier Resources System or 
     is undeveloped, greater than 50 acres in size, and adjacent 
     or contiguous to any lands managed by a governmental agency 
     primarily for the preservation purposes stated above. If a 
     Federal agency or qualified organization submits such a 
     letter of intent, the corporation concerned may not transfer 
     the property to any other party for ninety days, unless the 
     letter of intent is withdrawn.
     Defense Base Closure and Realignment Act of 1990 (Pub. L. 
         101-510, Section XXIX), as amended
       The Base Closure Act authorizes the Department of Defense 
     (DOD) to transfer properties to Federal and state agencies 
     through public benefit conveyances, if the property supports 
     a primary mission of the agency. The Department of the 
     Interior is specifically provided opportunities to acquire 
     base closure property at no cost for any one of three 
     purposes: parks and recreation, wildlife conservation, or 
     historic monuments.
       Attached are materials relative to these authorities.

                                  ____
                                  

                               Attachment

     Sec. 667a. Omitted

                            Historical Note

       Codification. Section, Act June 8, 1940, c. 295.Sec. Sec. 1 
     to 4, 54 Stat. 261, authorized compacts or agreements between 
     or among the States bordering on the Atlantic Ocean with 
     respect to fishing in the territorial waters and bays and 
     inlets of the Atlantic Ocean on which such States border.
       Act May 4, 1942, c. 283, Sec. Sec. 1 to 4, 56 Stat. 267, 
     granted the consent and approval of Congress to an interstate 
     compact relating to the better utilization of the fisheries 
     (marine, shell, and anadromous) of the Atlantic seaboard and 
     creating the Atlantic States Marine Fisheries Commission.
       Act Aug. 19, 1950, c. 763, Sec. Sec. 1 to 4, 64 Stat. 467, 
     granted the consent and approval of Congress to an amendment 
     to the Atlantic States Marine Fisheries Compact and repealed 
     limitation on the life of such compact.

     Sec. 667b. Transfer of certain real property for wildlife 
       conservation purposes; reservation of rights

       Upon request, real property which is under the jurisdiction 
     or control of a Federal agency and no longer required by such 
     agency, (1) can be utilized for wildlife conservation 
     purposes by the agency of the State exercising administration 
     over the wildlife resources of the State wherein the real 
     property lies or by the Secretary of the Interior; and (2) is 
     valuable for use for any such purpose, and which, in the 
     determination of the Administrator of General Services, is 
     available for such use may, notwithstanding any other 
     provisions of law, be transferred without reimbursement or 
     transfer of funds (with or without improvements as determined 
     by said Administrator) by the Federal agency having 
     jurisdiction or control of the property to (a) such State 
     agency if the management thereof for the conservation of 
     wildlife relates to other than migratory birds, or (b) to the 
     Secretary of the Interior if the real property has particular 
     value in carrying out the national migratory bird management 
     program. Any such transfer to other than the United States 
     shall be subject to the reservation by the United States of 
     all oil, gas, and mineral rights, and to the condition that 
     the property shall continue to be used for wildlife 
     conservation or other of the above-stated purposes and in the 
     event it is no longer used for such purposes or in the event 
     it is needed for national defense purposes title thereto 
     shall revert to the United States.
     (May 19, 1948, c. 310, Sec. 1, 62 Stat. 240; June 30, 1949, 
     c. 288, Title I, Sec. 105, 63 Stat. 381; Sept. 26, 1972, 
     Pub.L. 92-432, 86 Stat. 723.)

                            Historical Note

       1972 Amendment. C1. (2). Pub.L. 92-432 deleted ``chiefly'' 
     preceding ``valuable for use''.
       Transfer of Functions. The functions, records, property, 
     etc., of the War Assets Administration were transferred to 
     the General Services Administration, the functions of the War 
     Assets Administrator were transferred to the Administrator of 
     General Services, and the War Assets Administration, and the 
     office of War Assets Administrator were abolished by section 
     105 of the Act June 30, 1949.

[[Page E2494]]

       Effective Date of Transfer of Functions. Transfer of 
     functions effective July 1, 1949, see Effective Date note set 
     out under section 471 of Title 40, Public Buildings, Property 
     and Works.
       Legislative History. For legislative history and purpose of 
     Act May 19, 1948, see 1948 U.S. Code Cong. Service, p. 1553. 
     See, also, Act June 30, 1949, 1949 U.S. Code Cong. Service, 
     p. 1475; Pub.L. 92-432, 1972 U.S. Code Cong. and Adm.News, p. 
     3366.

                                  ____
                                  

    [From the Federal Register, Vol. 59, No. 20G, October 26, 1994]

                         DEPARTMENT OF DEFENSE

                        Office of the Secretary

                         32 CFR Parts 90 and 91

                      RINs 0790-AF61 and 0790-AF62

     Revitalizing Base Closure Communities and Community Assistance

     AGENCY: Department of Defense, DoD.
     ACTION: Interim final rule: amendments.
     SUMMARY: The interim final rule amendment promulgates 
     guidance required by Section 2903 of the National Defense 
     Authorization Act for Fiscal Year 1994. This guidance 
     clarifies the application process and the criteria that will 
     be used to evaluate an application for property under this 
     section.
     DATES: This document is effective October 26, 1994. Any 
     pending written request for economic development Economic 
     Adjustment. Consequently, application submitted by entities 
     other than LRAs will not be considered.
       When should an application for an Economic Development 
     Conveyance be made?
       First, an LRA must be organized and a redevelopment plan 
     created. The Department of Defense's Office of Economic 
     Adjustment can provide guidance and technical and financial 
     support in these efforts, Once a redevelopment plan has been 
     developed and adopted, the LRA can then submit an EDC 
     application to the Military Department responsible for the 
     property. The application should be submitted by the lRA 
     after consultation with the Military Department which shall 
     establish a reasonable time period for submission of the 
     application.
       The LRA always has the option of acquiring property under 
     the FPASA and thus it may not be necessary to complete an 
     application for a EDC within the stated timetables. LRSs can 
     discuss the various transfer options with the Military 
     Department.
       How much property should be included in an Economic 
     Development Conveyance application?
       The EDC should be used by LRAs to obtain large parcels of 
     the base rather then merely individual buildings. The income 
     received from some of the higher value property should be 
     used to offset the maintenance and marketing cost of the less 
     desirable parcels. In order for this conveyance to spur 
     redevelopment, large parcels must be used to provide an 
     income stream to assist the long-term development of the 
     property.
       Why is an application necessary?
       This Amendment to the interim final rule prescribes that an 
     application be prepared by an LRA as the formal request for 
     property, to better assist the Military Department in 
     considering requests for property under the Economic 
     Development Conveyance (EDC). This information also will 
     provide the basis for the Military Department to respond to 
     its obligation under Title XXIX, taking into account the best 
     community-based information on the proposed conveyance 
     action. A great deal of information necessary for an 
     application is readily available to the LRA through the 
     community planning process and supported through existing DoD 
     technical and financial resources.
       Beyond the standard planning information collected to date. 
     LRAs should incorporate a business and development component 
     into their overall base reuse planning process as a basis for 
     receiving and managing the real property. This supplemental 
     effort will assist LRAs in identifying necessary 
     implementation resources and establish a community-based 
     proposal for the Military Department's consideration. The 
     Military Departments and the Office of Economic Adjustment 
     will continue to work closely with the affected LRA to ensure 
     that an adequate planning effort is undertaken.
       What must an application contain?
       The application should explain why an EDC is necessary for 
     economic redevelopment and job creation. They application 
     should contain the following elements.
       1. A copy of the adopted Redevelopment Plan.
       2. A project narrative including the following:
       --A general description of property requested.
       --A description of the intended uses.
       --A description of the economic impact of closure on the 
     local communities.
       --A description of the financial condition of the community 
     and the prospects for redevelopment of the property.
       --A statement of how the EDC is consistent with the overall 
     Redevelopment Plan.
       3. A description of how the EDC will contribute to short- 
     and long-term job creation and economic redevelopment of the 
     base and community, including projected number, and type, of 
     new jobs it will assist in creating.
       4. A business and development plan for the EDC parcel, 
     including such elements as:
       --A development timetable, phasing plan and cash flow 
     analysis.
       --A market and financial feasibility analysis describing 
     the economic visibility of the project, including an estimate 
     of net proceeds over a fifteen-year period, the proposed 
     consideration or payment to the Department of Defense, and 
     the estimated fair market value of the property.
       --A cost estimate and justification for infrastructure and 
     other investments needed for the development of the EDC 
     parcel.
       --Local investment and proposed financing strategies for 
     the development.
       5. A statement describing why other authorities--as 
     negotiated sale and public benefit transfer for education, 
     parks, public health, aviation, historic monuments, prisons, 
     and wildlife conservation--cannot be used to accomplish the 
     economic development and job creation goals.
       6. If a transfer is requested for less than the estimated 
     fair market value--with or without initial payment at the 
     time of transfer--then a statement should be provided 
     justifying discount. The statement should include the amount 
     and form of the proposed consideration, a payment schedule, 
     the general terms and conditions for the conveyance, and 
     projected date of conveyance.
       7. A statement of the LRA's legal authority to acquire and 
     dispose of the property.
       Additional information may be requested by the Military 
     Departments to allow for a better evaluation of the 
     application. LRAs are encouraged to use site information 
     available from the Military Departments, including 
     maintenance and caretaking expenses.
       What criteria will be used to make a determination on the 
     application?
       After receipt of an application for an EDC, the Secretary 
     of the Military Department will determine whether an EDC is 
     appropriate to spur economic development and job creation and 
     examine whether the terms and conditions proposed are fair 
     and reasonable. The Military Department may also consider 
     information independent of the application, such as views of 
     other Federal agencies, appraisals, caretaker costs and other 
     relevant information.
       The following criteria and factors will be used, as 
     appropriate, to determine whether a community is eligible for 
     an EDC and to evaluate the proposed terms and conditions of 
     the EDC, including price, time of payment and other relevant 
     methods of compensation to the Federal Government.
       Adverse economic impact of closure on the region and 
     potential for economic recovery after an EDC.
       Extent of short- and long-term job generation.
       Consistency with the overall Redevelopment Plan.
       Financial feasibility of the development, including market 
     analysis and the need and extent of proposed infrastructure 
     investment.
       Extent of State and local investment and level of risk 
     incurred.
       Current local and regional real estate market conditions.
       Incorporation of other Federal agency interests and 
     concerns, and applicability of, and conflicts with, other 
     Federal property disposal authorities.
       Relationship to the overall Military Department disposal 
     plan for the installation.
       Economic benefit to the Federal Government, including 
     protection and maintenance cost savings and anticipated 
     consideration from the transfer.
       Compliance with applicable Federal, State, and local laws 
     and regulations.
       What are the guidelines for determining the terms and 
     conditions of consideration?
       The individual circumstances of each community and each 
     base mean that the amount and type of consideration may vary 
     from base to base. This amendment gives greater discretion 
     and flexibility to the Military Departments to negotiate with 
     the LRA to arrive at an appropriate arrangement. Due to the 
     circumstances of a particular site, the base's value may be 
     high or low, and the range of the estimated present fair 
     market value may be broad or narrow. Where there is value, 
     the Department of Defense has an obligation under Title XXIX 
     of the National Defense Authorization Act for FY 1994 to 
     obtain consideration within the estimated range of present 
     fair market value, or to justify why such consideration was 
     not realized.
       Taking into account all information provided in the EDC 
     application and any additional information considered 
     relevant, the Military Department will contract for or 
     prepare an estimate of the fair market value of the property, 
     which may be expressed as a range of values. The Military 
     Department shall consult with the LRA on valuation 
     assumptions, guidelines and on instructions given to the 
     person(s) making the estimation of value.
       As stated above, the EDC application must contain a 
     statement that proposes general terms and conditions of the 
     conveyance, as well as the amount and type of the 
     consideration, a payment schedule, and projected date of 
     conveyance. After reviewing the application, the Military 
     Department has the discretion and flexibility to enter into 
     one of two types of agreements:
       1. Consideration within the estimated range of present fair 
     market value, as determined by the Secretary of the Military 
     Department. The Military Department can be flexible about the 
     terms and conditions of payment, and can provide financing on 
     the property. The payment can be in cash or in-kind, and can 
     be paid at time of transfer or at a time in the future. The 
     Military Departments will have the discretion and flexibility 
     to enter into agreements that specify the form and amount of 
     consideration and ensures that consideration is within the 
     estimated range of fair market value at the time of 
     application. Such methods of payment

[[Page E2495]]

     could include: participation in the gross or net cash flow, 
     deferred payments, mortgages or other financing arrangements.
       2. Consideration below the estimated range of fair market 
     value, where proper justification is provided: If a discount 
     is found by the Secretary of the Military Department to be 
     necessary to foster local economic redevelopment and job 
     creation, the amount of consideration can be below the 
     estimated range of fair market value. Again, the terms and 
     conditions of payment will be negotiated between the Military 
     Department and the LRA.
       (a). Justification. Proper justification for a discount 
     shall be based upon the findings in the business and 
     development plan contained in the EDC application.
       Development economics, including absorption schedules and 
     legitimate infrastructure costs, would provide a basis for 
     such justification. The ability to pay at time of conveyance 
     or to obtain financing would not be a proper justification, 
     since payment terms and conditions can be negotiated.
       In negotiating the terms and conditions of consideration 
     with the LRA, the Secretary of the Military Department must 
     determine that a fair and reasonable compensation to the 
     Federal Government will be realized from the EDC. Where 
     property is transferred under an EDC at an amount less than 
     the estimated range of fair market value, the Military 
     Department shall prepare a written explanation of why the 
     consideration was less than the estimated range of present 
     fair market value.

                        D. Executive Order 12866

       It has been determined that these amendments are a 
     significant regulatory action. The amendments to the rule 
     raise novel policy issues arising out of the President's 
     priorities.

                     E. Regulatory Flexibility Act

       This rule amendment is not subject to the Regulatory 
     Flexibility Act (5 U.S.C. 601 et seq.) because the amendment 
     will not have a significant economic impact on a substantial 
     number of small entities. The primary effect of this 
     amendment will be to reduce the burden on local communities 
     of the Government's property disposal process at closing 
     military installations and to accelerate the economic 
     recovery of the relatively small number of communities that 
     will be affected by the closure of nearby military 
     installations.

                       F. Paperwork Reduction Act

       The Rule amendment is not subject to the Paperwork 
     Reduction Act because it imposes no obligatory information 
     requirements beyond internal DoD use.
     List of Subjects in 32 CFR Parts 90 and 91.
       Community development, Government employees, Military 
     personnel, Surplus Government property.

             PART 90--REVITALIZING BASE CLOSURE COMMUNITIES

       1. The authority citation for 32 CFR part 90 continues to 
     read as following:
       Authority: 10 U.S.C. 2687 note.

     Sec. 90.4 [Removed and Reserved]

       2. Section 90.4(a)(1)(iii) is removed and reserved.
       3. Section 90.4(b) is revised to read as follows:

     Sec. 90.4 Policy.

                           *   *   *   *   *


       (b) In implementing Title XXIX of Public Law 103-160, it is 
     DoD policy to convey property to a Local Redevelopment 
     Authority (LRA) to help foster economic development and job 
     creation when other federal property disposal options cannot 
     achieve such objectives. Conveyances to the LRA will be made 
     under terms and conditions designed to facilitate local 
     economic redevelopment and job creation, and may be made at 
     less than fair market value, with proper justification.

                           *   *   *   *   *


PART 91--REVITALIZING BASE CLOSURE COMMUNITIES--BASE CLOSURE COMMUNITY 
                               ASSISTANCE

       4. The authority citation for part 91 continues to read as 
     follows:
       Authority: 10 U.S.C. 2687 note.
       4A. Section 91.4 is revised to read as follows:

     Sec. 91.4 Policy.

       It is DoD policy to convey property to a Local 
     Redevelopment Authority (LRA) to help foster economic 
     development and job creation when other federal property 
     disposal options cannot achieve such objectives. Conveyances 
     to the LRA will be made under terms and conditions designed 
     to facilitate local economic redevelopment and job creation, 
     and may be made at less than fair market value, with property 
     justification. This regulation does not create any rights and 
     remedies and may not be relied upon by any person, 
     organization, or other entity to allege a denial of any 
     rights or remedies other than those provided by Pub. L. 103-
     160. Title XXIX.
       (x) Compliance with applicable Federal, State, and local 
     laws and regulations.
       (l) Consideration.
       (1) For conveyances made pursuant to section 91.7(d). 
     Economic Development Conveyances, the Secretary of the 
     Military Department will review the application for an EDC 
     and negotiate the terms and conditions of each transaction 
     with the LRA. The Military Departments will have the 
     discretion and flexibility to enter into agreements that 
     specify the form, amount, and payment schedule. The 
     consideration may be at or below the estimated fair market 
     value, with or without initial payment, in cash or inkind and 
     paid over time. An EDC must be one of the two following types 
     of agreements:
       (i) Consideration within the estimated range of present 
     fair market value, as determined by the Secretary of the 
     Military Department. Payments must be made to ensure 
     consideration is within the estimated range of fair market 
     value at the time of application.
       (ii) Consideration can be below the estimated range of fair 
     market value, when proper justification is provided. The 
     amount of consideration can be below the estimated range of 
     fair market value, if the Secretary of the Military 
     Department determines that a discount is necessary for 
     economic redevelopment and job creation.
       (2) The amount of consideration paid in the future shall 
     equal the present value of the agreed-upon fair market value 
     or discounted fair market value. Additional provisions may be 
     incorporated in the conveyance documents to protect the 
     Department's interest in obtaining the agreed upon 
     consideration. Also, the standard GSA excess profits clause, 
     appropriately tailored to the transaction, will be used in 
     the conveyance documents to the LRA.
       (3) In a rural area, as defined by this rule, any EDC 
     approved by the Secretary of the Military Department shall be 
     made without consideration when the base closure will have a 
     substantial adverse impact on the economy of the communities 
     in the vicinity of the installation and on the prospect for 
     their economic recovery. The Secretary of the Military 
     Department concerned will determine if these two conditions 
     are met based on all the information considered in the 
     application for an Economic Development Conveyance. Specific 
     attention will be placed on the business and development plan 
     submitted as part of the EDC application and the criteria 
     listed in section 91.7(e)(8) will be used.
       (4) In those instances in which an EDC is made for 
     consideration below the range of the estimated present fair 
     market value of the property--or if the estimated fair market 
     value is expressed as a range of values, below the lowest 
     value in that range--the Military Department shall prepare a 
     written explanation why the estimated fair market value was 
     not obtained. Additionally, the Military Departments must 
     prepare a written statement explaining why other Federal 
     property transfer authorities could not be used to generate 
     economic redevelopment and job creation.

                           *   *   *   *   *

       Dated: October 20, 1994.
     L.M. Bynum,
     Alternate OSD Federal Register Liaison Officer, Department of 
     Defense.

                                  ____
                                  

                 Revision Notes and Legislative Reports

       1989 Act. House Report No. 101-54 and House Conference 
     Report No. 101-209, see 1989 U.S. Code Cong. and Adm.News, p. 
     86.

                           References in Text

       The Housing and Urban Development Act of 1968, as amended, 
     referred to in par. (2), is Pub.L. 90-448, Aug. 1, 1968, 82 
     Stat. 476, as amended. Title IX of the Housing and Urban 
     Development Act of 1968, as amended, is classified 
     principally to chapter 49 (Sec. 3931 et seq.) of Title 42, 
     The Public Health and Welfare. Title IV of the Housing and 
     Urban Development Act, which was classified to chapter 48 
     (Sec. 8901 et seq.) of Title 42, was repealed, with certain 
     exceptions which were omitted from the Code, by Pub.L. 98-
     181, Title IV, Sec. 474(e), Nov. 30, 1983, 97 Stat. 1239. For 
     complete classification of this Act to the Code, see Short 
     Title of 1968 Amendment note set out under section 1701 of 
     this title and Tables.

                             Codifications

       Section was enacted as part of the Financial Institutions 
     Reform, Recovery, and Enforcement Act of 1989 and not as part 
     of the Federal Home Loan Bank Act, which comprises this 
     chapter.

                       Separability of Provisions

       If any provisions of Pub.L. 101-73 or the application 
     thereof to any person or circumstance is held invalid, the 
     remainder of Pub.L. 101-73 and the application of the 
     provision to other persons not similarly situated or to other 
     circumstances not to be affected thereby, see section 1221 of 
     Pub.L. 101-73, set out as a note under section 1811 of this 
     title.

     Sec. 1441a-2. Authorization for State housing finance 
       agencies and nonprofit entities to purchase mortgage-
       related assets

     (a) Authorization
       Notwithstanding any other provision of Federal or State 
     law, a State housing finance authority or nonprofit entity 
     may purchase mortgage-related assets from the Resolution 
     Trust Corporation or from financial institutions with respect 
     to which the Federal Deposit Insurance Corporation is acting 
     as a conservator or receiver (including assets associated 
     with any trust business), and any contract for such purchase 
     shall be effective in accordance with its terms without any 
     further approval, assignment, or consent with respect to that 
     contract.
     (b) Investment requirement
       Any State housing finance authority or nonprofit entity 
     which purchases mortgage-related assets pursuant to 
     subsection (a) of

[[Page E2496]]

     this section shall invest any net income attributable to the 
     ownership of those assets in financing, refinancing, or 
     rehabilitating low- and moderate-income housing within the 
     jurisdiction of the State housing finance authority or within 
     the geographical area served by the nonprofit entity.
     (Pub.L. 101-73, Title XIII, Sec. 1302, Aug. 9, 1989, 103 
     Stat. 548.)

                     HISTORICAL AND STATUTORY NOTES

                 Revision Notes and Legislative Reports

       1989 Act. House Report No. 101-54 and House Conference 
     Report No. 101-209, see 1989 U.S.Code Cong. and Adm. News, p. 
     86.

                             Codifications

       Section was enacted as part of the Financial Institutions 
     Reform, Recovery, and Enforcement Act of 1989 and not as part 
     of the Federal Home Loan Bank Act, which comprises this 
     chapter.

                              Definitions

       For definitions of terms used in this section see section 
     1441a-1 of this title.

                           LIBRARY REFERENCES

                         American Digest System

       Supremacy of federal law as to banking, see States 
     Sec. 18.19.

                             Encyclopedias

       Concurrent of conflicting state legislation, see C.J.S. 
     States Sec. 24.

                      WESTLAW ELECTRONIC RESEARCH

       States cases: 360k [add key number].

     Sec. 1441a-3. RTC and FDIC properties

     (a) Reports
       (1) Submission
       The Resolution Trust Corporation and the Federal Deposit 
     Insurance Corporation shall each submit to the Congress for 
     each year a report identifying and describing any property 
     that is covered property of the corporation concerned as of 
     September 30 of such year. The report shall be submitted on 
     or before March 30 of the following year.
       (2) Consultation
       In preparing the reports required under this subsection, 
     each corporation concerned may consult with the Secretary of 
     the Interior for purposes of identifying the properties 
     described in paragraph (1).
     (b) Limitation on Transfer
       (1) Notice
       The Resolution Trust Corporation and the Federal Deposit 
     Insurance Corporation may not sell or otherwise transfer any 
     covered property unless the corporation concerned causes to 
     be published in the Federal Register a notice of the 
     availability of the property for purchase or other transfer 
     that identifies the property and describes the location, 
     characteristics, and size of the property.
       (2) Expression of serious interest
       During the 90-day period beginning on the date that notice 
     under paragraph (1) concerning a covered property is first 
     published, any governmental agency or qualified organization 
     may submit to the corporation concerned a written notice of 
     serious interest for the purchase or other transfer of a 
     particular covered property for which notice has been 
     published. The notice of serious interest shall be in such 
     form and include such information as the corporation 
     concerned may prescribe.
       (3) Prohibition of transfer
       During the period under paragraph (2), a corporation 
     concerned may not sell or otherwise transfer any covered 
     property for which notice has been published under paragraph 
     (1). Upon the expiration of such period, the corporation 
     concerned may sell or otherwise transfer any covered property 
     for which notice under paragraph (1) has been published if a 
     notice of serious interest under paragraph (2) concerning the 
     property has not been timely submitted.
       (4) Offers and permitted transfer
       If a notice of serious interest in a covered property is 
     timely submitted pursuant to paragraph (2), the corporation 
     concerned may not sell or otherwise transfer such covered 
     property during the 90-day period beginning upon the 
     expiration of the period under paragraph (2) except to a 
     governmental agency or qualified organization for use 
     primarily for wildlife refuge, sanctuary, open space, 
     recreational, historical, cultural, or natural resource 
     conservation purposes, unless all notices of serious interest 
     under paragraph (2) have been withdrawn.
     (c) Definitions
       For purposes of this section:
       (1) Corporation concerned
       The term ``corporation concerned'' means--
       (A) the Federal Deposit Insurance Corporation, with respect 
     to matters relating to the Federal Deposit Insurance 
     Corporation; and
       (B) the Resolution Trust Corporation, with respect to 
     matters relating to the Resolution Trust Corporation.
       (2) Covered property
       The term ``covered property'' means any property--
       (A) to which--
       (i) the Resolution Trust Corporation has acquired title in 
     its corporate or receivership capacity; or
       (ii) the Federal Deposit Insurance Corporation has acquired 
     title in its corporate capacity or which use acquired ****
       (B) that--
       (i) is located within the Coastal Barrier Resources System; 
     or
       (ii) is undeveloped, greater than 50 acres in size, and 
     adjacent to or contiguous with any lands managed by a 
     governmental agency primarily for wildlife refuge, sanctuary, 
     open space, recreational, historical, cultural, or natural 
     resource conservation purposes.
       (3) Governmental agency
       The term ``governmental agency'' means any agency or entity 
     of the Federal Government or a State or local government.
       (4) Undeveloped
       The term ``undeveloped'' means
       (A) containing few manmade structures and having geomorphic 
     and ecological processes that are not significantly impeded 
     by any such structures or human activity; and
       (B) having natural, cultural, recreational, or scientific 
     value of special significance.
     (Pub.L. 101-591, Sec. 10, Nov. 16, 1990, 104 Stat. 2939.)

                     HISTORICAL AND STATUTORY NOTES

                 Revision Notes and Legislative Reports

       1990 Act. House Report No. 101-657(I) and (II), see 1990 
     U.S.Code Cong. and Adm.News, p. 4190.

                             Codifications

       Section was enacted as part of the Coastal Barrier 
     Improvement Act of 1990 and not as part of the Federal Home 
     Loan Bank Act, which comprises this chapter.

     Sec. 1441b. Resolution Funding Corporation established

     (a) Purpose
       The purpose of the Resolution Funding Corporation is to 
     provide funds to the Resolution Trust Corporation to enable 
     the Resolution Trust Corporation to carry out the provisions 
     of this chapter.
     (b) Establishment
       There is established a corporation to be known as the 
     Resolution Funding Corporation.
     (c) Management of Funding Corporation
       (1) Directorate
       The Funding Corporation shall be under the management of a 
     Directorate composed of 3 members as follows:
       (A) The director of the Office of Finance of the Federal 
     Home Loan Banks (or the head of any successor office).
       (B) 2 members selected by the Thrift Depositor Protection 
     Oversight Board from among the presidents of the Federal Home 
     Loan Banks.
       (2) Terms
       Of the 2 members appointed under paragraph (1)(B), 1 shall 
     be appointed for an initial term of 2 years and 1 shall be 
     appointed for an initial term of 3 years. Thereafter, such 
     members shall be appointed for a term of 3 years.
       (3) Vacancy
       If any member leaves the office in which such member was 
     serving when
        * * *
       (B) the successor to the office of such member shall serve 
     the remainder of such member's term.
       (4) Equal representation of banks
       No president of a Federal Home Loan Bank may be appointed 
     to serve an additional term on the Directorate until such 
     time as the presidents of each of the other Federal Home Loan 
     Banks have served as many terms as the president of such 
     bank.
       (5) Chairperson
       The Thrift Depositor Protection Oversight Board shall 
     select the chairperson of the Directorate from among the 3 
     members of the Directorate.
       (6) Staff
       (A) No paid employees
       The Funding Corporation shall have no paid employees.
       (B) Powers
       The Directorate may, with the approval of the Federal 
     Housing Finance Board authorize the officers, employees, or 
     agents of the Federal Home Loan Banks to act for and on 
     behalf of the Funding Corporation in such manner as may be 
     necessary to carry out the functions of the Funding 
     Corporation.
       (7) Administrative expenses
       (A) In general
       All administrative expenses of the Funding Corporation, 
     including custodian fees, shall be paid by the Federal Home 
     Loan Banks.
       (B) Pro rata distribution
       The amount each Federal Home Loan Bank shall pay under 
     subparagraph (A) shall be determined by the Thrift Depositor 
     Protection Oversight Board by multiplying the total 
     administrative expenses for any period by the percentage 
     arrived at by dividing--
       (i) the aggregate amount the Thrift Depositor Protection 
     Oversight Board required such bank to invest in the Funding 
     Corporation (as of the time of such determination) under 
     paragraphs (4) and (5) of subsection (e) of this section 
     (computed without regard to paragraphs (3) or (6) of such 
     subsection); by
       (ii) the aggregate amount the Thrift Depositor Protection 
     Oversight Board required all Federal Home Loan Banks to 
     invest (as of the time of such determination) under such 
     paragraphs.
       (8) Regulation by Thrift Depositor Protection Oversight 
     Board
       The Directorate of the Funding Corporation shall be subject 
     to such regulations, orders, and directions as the Thrift 
     Depositor Protection Oversight Board may prescribe.
       (9) No compensation from Funding Corporation
       Members of the Directorate of the Funding Corporation shall 
     receive no pay, allowance, or benefit from the Funding 
     Corporation for serving on the Directorate.
     (d) Powers of the Funding Corporation
       The Funding Corporation shall have only the powers 
     described in paragraphs (1) through (9), subject to the other 
     provisions of this section and such regulations, orders, ***

                                  ____
                                  

       ISSUE 4: WHAT WOULD BE THE POSSIBLE BUDGETARY IMPACT FROM 
     AN ACQUISITION OF THE HEADWATERS FOREST THROUGH THE FDIC?

[[Page E2497]]

       SHORT ANSWER: ANY BUDGETARY IMPACT, INCLUDING ISSUES OF 
     ``SCORING,'' IS DEPENDENT ON THE PARTICULAR STRUCTURE OF THE 
     TRANSACTION AND WHETHER SPECIFIC LEGISLATION WAS NECESSARY TO 
     FACILITATE THE ACQUISITION OR TRANSFER OF THE HEADWATERS 
     FOREST.
       DISCUSSION ANSWER:
       The interagency group has discussed several potential 
     mechanisms for accomplishing the proposed ``debt for nature'' 
     swap. The following discussion addresses the budgetary impact 
     of several possible ways of acquiring the Headwaters Forest, 
     putting aside the question of whether there is substantive 
     authority for FDIC, Treasury, or Interior/USDA to execute any 
     of these transactions under existing law.
       First, we have discussed a possible transaction in which 
     the FSLIC Resolution Fund (FRF) would gain title to the land 
     and transfer it to Treasury, possibly considering the value 
     of the land as an ``advance payment'' on funds that will 
     eventually be returned to Treasury when the FRF dissolves. 
     Treasury would then transfer/sell the land to the appropriate 
     agency. If it is determined that the authority to execute 
     this transaction exists under current law, then the 
     transaction cannot be ``scored'' under the Budget Enforcement 
     Act (only legislation may be scored). However, there would be 
     a budget impact. If FRF gained title to the land and did not 
     recover cash for it, FRF would have fewer receipts. In more 
     technical terms, the failure to recover cash for the land 
     would be a foregone receipt to FRF. This foregone receipt 
     increases FRF's outlays, increases total Federal outlays, and 
     increases the deficit. The budget effect is the same 
     regardless of whether the transfer is to Treasury as an 
     intermediary or directly to the Park Service.
       Second, there may be a possibility of trading other U.S. 
     government property (such as surplus military property) for 
     the land. This transaction would not necessarily need to 
     involve the FRF, which could receive any settlement of its 
     claims in cash. Again, if no legislation is required, then 
     the transaction cannot be scored under the Budget Enforcement 
     Act. In general, barter transactions are not recorded in the 
     budget. However, if the surplus property that is used in the 
     exchange would have otherwise been sold, the agency which 
     owned the property would be foregoing receipts. These 
     foregone receipts would increase that agency's outlays, 
     increase total Federal outlays, and increase the deficit.
       Third, it may be the case that legislation is needed to 
     authorize the transaction or to appropriate funds to complete 
     the debt-for-nature swap. If legislation is needed, then the 
     Congressional Budget Office and OMB would be responsible for 
     estimating the budgetary effect of the transaction. 
     Legislation that increases direct spending (i.e., spending 
     that is not under the control of Congressional appropriators) 
     is scored under the ``pay-as-you-go'' (PAYGO) rules of the 
     Budget Enforcement Act. An example of direct spending 
     legislation that is relevant to the case at hand would be if 
     the legislation directed FDIC to hand over the property to 
     another Federal agency without reimbursement; this 
     legislation would be considered to be direct spending since 
     it forces the FRF to forgo receipts (and therefore increases 
     FRF's outlays and total Federal outlays). Similarly, 
     legislation that requires the exchange of excess Government 
     property that would otherwise have been sold for the 
     Headwaters Forest would also be scored as foregone receipts 
     under the PAYGO rules.
       Legislation that simply authorizes an appropriation for an 
     agency (e.g., the Park Service) to buy the property from the 
     FRF (or, for that mater, from an individual) would not be 
     scored, since no resources would actually become available 
     for the purchase until a separate appropriations law is 
     enacted. If an appropriations act provides funding to an 
     agency to purchase the property, then the budget impact would 
     be scored as discretionary.

                                  ____
                                  

                               Record 31


                                      Environmental Protection

                                           Information Center,

                                                  Garberville, CA.
       3,000 core acres--redwoods.
       1,700 acres buffer zone.
       Calif is now talking downward $50 to 70 million.
                                                   Cecelia Lanman,
                            Biodiversity Network Project Director.

                                  ____
                                  

                                   Natural Heritage Institute,

                                                   Washington, DC.
       3,000 core acres--redwoods.
       1,700 acres buffer zone.
       Calif is now talking downward $50 to 70 million.
                                                   Julia A. Levin,
                                                   Staff Attorney.

                                  ____
                                  

       On or about 11/30/95.
       Jill R * * * refer to J. Williams * * *

                                  ____
                                  

       On or about 12/7/95.
       /12/3:00 closed. Alan McReynolds * * * Jill R * * * Maxxan 
     motion to dismiss--get it from Ct--not from us--H manuf. 
     consp. issues.

                                  ____
                                  

       On or about 2/13/96.
       How FDIC holds properties list of high value prop. in 
     Calif./Texas.

                                  ____
                                  

       10/19/95.
       Gore's Chief of Staff--Ann.
       Chairperson CEO, Katie McGinty.
       Elizabeth Blaug * * * Red Emerson own, Sierra Lumber--
     buffer zone, Earth firsters chaining themselves to * * *.
       Why was the appraisal done?
       How much area did it cover?
       When was it done?
       Did it include the 1000 acres buffer zone?
       Kate Anderton * * * New G.C. Save The Redwoods League, 
     Appraisal Valuation January 1, 1993.
       1992 Bush received * * * as an appraisal * * * for 
     headwaters. Interior subcommittee said do appraisal Rep. 
     Stark * * *, California/Pacific Lumber did forest cruise 
     (est. Boardfeet). Neither state nor Pacific Lumber paid--so 
     they don't have appraisal. Basis of cruise challengeable.
       (1) Get Forest Service to share cruise and appraisal; (2) 
     independent review by forester credible with both environment 
     and industry. Save the Redwoods League Hammon Jennsen Wallen 
     & Associates out of Oakland--well known to work for Pacific 
     Lumber a lot. Appraisal assumed cutting 96 to 97% of all 
     trees on property. Estimate only 3 to 4% set aside to meet 
     California Regulations. Basis of environmentalists attack in 
     hearings. 4,488 acres for bottom line--headwaters grove.
       Old growth grove 3,000. Buffer to W, S, little E 15000 
     (owned by Pacific Lumber) to N buffer is owned by Sierra 
     Lumber.
       Department of Energy--oil leases on public lands or BLM.
       Defense Lands--DOD
       Make it part of 6 Rivers National Forest managed by 
     Agriculture. Options BLM manage, Fish & Wildlife manage as a 
     refuge.
       $499 million appraisal--3000 acres headwaters, 1500 acres 
     buffer * * *

                                  ____
                                  

       10/11/95.
       Continued to talk to environmentalists, surrounding 
     landowners
       Katie McGinty head of Council.
       V.P. met with environmentalist when he was out there.
       10/12--Dave Felt. Monty Tuesday.

                                  ____
                                  

       10/20/95
       May. At OMB re Hurwitz/Redwoods.
       Assume it would go to Forest Service--only $30 mil in our 
     land acquisition fund--We have no particular interest--very 
     small area to manage/very remote--would be a management 
     problem.
       May make more sense to give it to BLM, Park Service might 
     want it.
       How much money from the state--$70 m in timber.
       Exchanges--a gigantic exchange of land would alienate 
     citizens of neighboring states.
       DOD--forestry says consider military Base.
       If there there cash, we have higher priorities.
       Minority shareholders--suit against Hurwitz.
       Can H settle a suit by trading MAXXAM's assets
       -Can FDIC do it, what would Treasury have to do.
       Further--states interest--whether there are DOD 
     possibilities.
       Don't plan on cutting trees--Forest Service said that's why 
     it may be better to send it to Park Service.
       Reconvene in about 2 wks.
       Budget scorekeeping problem.
       Coastal Barrier Improvement Act.

                                  ____
                                  

       10/31/95--Alan McReynolds, DOD--Steve--Base Closure Cmtee.
       Revenue from closed bank goes into Bank Closure Acct--
     Revenues fund for other closures and improvements. Revenues 
     fund other closure actions including environmental cleanups. 
     A host of other public interest conveyances prisons, 
     hospitals, FAA airport, etc. 100% public benefit discount. 
     Homeless, port conveyance--Charlestown, Fish & Wildlife, 
     BLM--
       Dept. of Interior had a notion they could claim land and 
     swap it for protected land. Admin. opposes that kind of deal. 
     Community revitalization--in the past just sold em--didn't 
     get proper value--no zoning, no community support--BRAC (Base 
     Reallign and Closure, acct didn't get much money: Better to 
     work with community now. Community based programs Sept. 28, 
     95' Base closures approves by Cong. Fitzsimmons--Denver. 
     Hurwitz would be able to work with Redev. Auth.--88, 91, 93, 
     95 Communities want control of the property. Can't bypass the 
     process of Redev. Auth.
       If VP wanted to do it, we could structure a way to make it 
     happen. But DOD would lose receipts. Calif. would have to 
     look at outrage of local community. If we need spec. legis, 
     we'll figure that out. Not aware of any harvestable timber 
     land.
       Wanda didn't try to help Alan McReynolds.
       Can't trade whole Mendencino forest.
       Possible--Naval OC Station 36 acres. Anything less than 300 
     civilians may not be part of BRAC process--may be easier.
       Calif deleg. believes S.F. Bay area Harbor. Rep. Brown, 
     Stark, Feinstein.
       GSA controls mainly of Bldgs. Gordon has asked his staff to 
     list possib. in Bay area.
       Ellington AFB in Texas not a BRAC prop. Naval Station, 
     Ground Prairie B/W Dallas and Arlington Interior might be 
     part of screening process with GSA.
       Economic Development conveyance--DOD gets receipts back 
     over time.
       2nd Round postings
       USAT--RIO conf on environment included a contel to reduce 
     Greenhs gasses by yr. 2000.

[[Page E2498]]

     Program in Dept of envy to implement. Identify carbon offset 
     projects. Scientific model develop carbon sink capacity--
     preserve of trees perm. carbon sink--formulas--vehicle for 
     corp--carbon offsets. Political need for U.S. to make 
     progress.

                                  ____
                                  

       11/28/95--Headwaters mtg. CEQ go GSA route to transfer from 
     Trea to Interior.
       ``Coastal Barriers Mgt Act''--``12 U.S.C. 1441a-3''--RTC, 
     FDIC property.
       KM--extremely accurate reports came back from 
     environmentalists--keep confidentiality.
       Physical assets may not ``count as money for scoring''
       Treasury cannot give FRF credit for the trees.
       If policymakers make decision to accept trees--increases 
     Fed. deficit--Insurmountable issue--there is a hole here if 
     you take trees. Interior disagrees w/FDIC analysis of Coastal 
     Barriers--they think it does work.
       Eliz--our group will meet again to sift thru remaining 
     questions. No formal contacts until OTS files.
       John G.--we are leaning toward FDIC opening discussions.
       Lois--scoring problems were the biggest difficulties.
       John G.--after admin suit is filed is time for opening any 
     discussions--prior to that we get back to K.M. to see if 
     there's any reason not to go forward with negotiations.
       Alan McReynolds
       Investment properties
       About 2/26/96 RTC prop--in the past Interior had to pay. 
     Has that changed.
       $124m--Oak Valley, Beaumont, Calif, 6700 acres of under 
     land in Riverside Cty.; Kock property--La Quinta, Calif--1200 
     acres near Palm Springs, Wildlife Refuge Rancho San Diego--
     already
       Buckley--failure to advise clients--Ken Walker. Call admin. 
     atty to talk about case.

                                  ____
                                  

       Nov/Dec 1995
       Jeff Wms--11:40, Thur 60648 Nov 14, 11:00 722 Jackson Place 
     CEQ Conf Rm.
       Rick Sterns: Re Judge Hughes
       Ross Delston: Parker James, Jack Sherkma. * * * Pat Bak, M. 
     Palen, Ann Shopet. Judge Hughes--use of overlapping auth. 
     Hanass, Thur. order. Carolyn talked to Kim Thur.

                                  ____
                                  

       1/19/96. Told Alan McReynolds that I had talked to Carolyn 
     Buck after lunch on 7/17/96. I asked whether OTS wanted to be 
     involved in discussions led by CEQ to respond to Hurwitz' 
     suggestion about Headwaters. She said curtly, ``No.'' I asked 
     if she had any objection to FDIC participating--she said that 
     was not for her to decide. I concluded from her manner that 
     she did not intend to express an opinion and didn't want to 
     talk about it anymore so we parted without further 
     discussion. I advised Elizabeth Blauger about this yesterday 
     afternoon. I said that if Hurwitz wanted to have global 
     settlements with OTS and FDIC involved he would have to ask 
     for them just as happened with Ey and Deloitte

                                  ____
                                  

       Why consider giving these other properties, when there 1.6 
     B in losses.


     To: Jack D. Smith@LEGAL OGC Hdq@Washington
     From: Jeffrey Williams@LEGAL PLS2@Washington
     Subject: re: Meeting with Gore Today (Revised)
     Date: Friday, October 20, 1995 9:27:23 EDT

       Per my recent voice mail message to you regarding my 
     conversations with a key staffer in Pelosi's office who 
     worked on the Headwaters forest legislation for five years, I 
     now believe it is incorrect to describe the $499 million as 
     the result of an ``appraisal.'' It was not performed by any 
     independent person and was an estimate based on public 
     information prepared by the Forest Service and asserted by 
     the Director of the Forest Service in testimony before the 
     Subcommittee on National Parks & Public Land. The testimony 
     demonstrated that the value was seriously flawed and that 
     those that were involved in calculating the value never saw 
     the land.
       He said no one takes the $499 million seriously anymore, 
     particularly since Hurwitz bought PacLumber for $500 million 
     total that included all the company's assets which included a 
     large downtown San Francisco office building and tens of 
     thousands of acres of other land and buildings.
       As the 3500 acres has never been formally appraised, you 
     are correct that the time has come to commission such 
     valuation. PacLumber knows the $499 million is too high, 
     that's why, according to Pelosi's staffer, it is using it too 
     its advantage and not challenging it. True value may be half 
     that according to Pelosi's office.

                                  ____
                                  

         Executive Office of the President, Council on 
           Environmental Quality,
                                 Washington, DC, October 25, 1995.
     To: Dave Sherman, Forest Service; Allen McReynolds, DOI; 
         Larry Mellinger, DOI; Bruce Beard, OMB; Jack Smith, FDIC; 
         David Long, DOJ; John Bowman, Treasury.
     From: Elisabeth Blaug, Associate General Counsel.
     Subj: Headwaters Forest Meeting October 26.

       Most of you attended a meeting this past Friday at CEQ 
     Chair Katie McGinty's office, at which we initiated 
     discussions on a potential debt-for-nature swap. As you will 
     recall, the DIC recently filed a $250 million suit against 
     Charles Hurwitz for his role in the failure of the United 
     Savings Association of Texas (in addition, there is a private 
     False Claims challenge pending). Mr. Hurwitz is a major stock 
     owner in Maxxam, which acquired Pacific Lumber Company, which 
     owns and logs the Headwaters Forest. Because this forest 
     contains approximately 3,000 acres of virgin redwoods, there 
     is great interest to preserve it. Among a number of options 
     to consider for ensuring this happens is a potential debt-
     for-nature swap, by which FDIC would seek to acquire 
     Headwaters from Mr. Hurwitz in exchange for release of its 
     claims.
       At our meeting last Friday, a number of complex legal 
     issues were raised concerning this proposed swap, which 
     relate in some part to your agency. Essentially, we need to 
     examine if and how there might be a chain of ownership from 
     FDIC to Treasury to a land management agency. Hence, there is 
     a follow-up meeting tomorrow (Thursday) at 10:00 a.m. at 
     FDIC, 550 17th Street, room 3036. We will attempt to identify 
     the legal issues that need to be addressed to determine 
     whether a debt-for-nature swap is feasible. I look forward to 
     seeing you or your designate(s) tomorrow. Please contact me 
     at 395-7420 if you have any questions. The FDIC contact is 
     Jack Smith, Deputy General Counsel, at 898-3706.


                               Record 32

       Tell Me--about 3/4/96.

                                  ____
                                  

                               Record 33


                                 DRAFT

     To: William F. Kroener, III, General Counsel
     Subj: Meeting with Vice President Gore on Friday, Oct. 20, 
         1995, at 11:00 a.m.


                           DISCUSSION POINTS

     I. Background
       1. United Savings Association of Texas, Houston, Texas, 
     (``USAT'') was acquired in 1983 by Charles E. Hurwitz. 
     Hurwitz leveraged the institution through speculative and 
     uncontrolled investment and trading in large mortgage-backed 
     securities portfolios, without reasonable hedges, to $4.6 
     billion in assets. Investments lost value and USAT was 
     declared insolvent and placed into FSLIC receivership on 
     December 30, 1988. Loss to the FSLIC Resolution Fund is $1.6 
     billion.
       2. While Hurwitz was a controlling shareholder and de facto 
     director of USAT he acquired, through a hostile takeover and 
     with the strategic and financial assistance of Drexel Burnham 
     Lambert, Inc., Pacific Lumber Company, a logging business 
     based in northern California. As a result, Hurwitz came to 
     control the old growth, virgin redwoods that are the 
     principal focus of the Headwaters Forest.
     II. FDIC Litigation
       1. On August 2, 1995, FDIC as Manager of the FSLIC 
     Resolution Fund filed a lawsuit against Mr. Hurwitz seeking 
     damages in excess of $250 million.
       a. Complaint contains three claims:
       Count 1 alleges breach of fiduciary duty by Hurwitz as de 
     facto director and controlling shareholder of USAT by failing 
     to comply with a Net Worth Maintenance Agreement to maintain 
     the capital of USAT;
       Counts 2 and 3 allege gross negligence and aiding and 
     abetting gross negligence in establishing, controlling and 
     monitoring two large mortgage-backed securities portfolios.
       2. FDIC has authorized suit against three other former 
     directors of USAT that we have not yet sued; a tolling 
     agreement with these potential defendants expires on December 
     31, 1995. The court may order FDIC to decide to add them as 
     defendants prior to that date.
       3. Status of FDIC Litigation: Pursuant to the Federal Rules 
     of Civil Procedure, the parties--through counsel--have met 
     and exchanged disclosure statements that list all relevant 
     persons and documents that support our respective positions. 
     Moreover, the parties have agreed to a scheduling order that 
     reflects a quick pre-trial period. All discovery is to be 
     concluded by July 1, 1996. The court has set a scheduling 
     conference to discuss all unresolved scheduling issues for 
     October 24, 1995; and a follow-up conference on November 28, 
     1995.
     III. Settlement Discussions
       1. FDIC has had several meetings and discussions with 
     Hurwitz' counsel prior to the filing of the lawsuit. Hurwitz 
     has never, however, indicated directly to FDIC a desire a 
     negotiate a settlement of the FDIC's claims.
       2. As result of substantial attention to Pacific Lumber's 
     harvesting of the redwoods by the environmental community, 
     media inquiries, Congressional correspondence, and the state 
     of California, Pacific Lumber has issued various press 
     releases stating it would consider various means of 
     preserving the redwoods.
     IV. OTS Investigation
       1. Since July 1994, the Office of Thrift Supervision has 
     been investigating the failure of USAT for purposes of 
     initiating an administrative enforcement action against 
     Hurwitz, five other former directors and officers, and three 
     Hurwitz-controlled holding companies. The OTS may allege a 
     violation of the Net Worth Maintenance Agreement and unsafe 
     and unsound conduct relating to the two MBS portfolios and 
     USAT's real estate lending practices. If OTS files its 
     administrative lawsuit, if many allege damages that total 
     more that $250 million.
       2. OTS has met with Hurwitz' counsel; no interest in 
     settlement has been expressed to OTS.

[[Page E2499]]

       3. OTS is likely to formally file the charges within 45 
     days.
       4. Appears to FDIC inappropriate to include OTS 
     representatives in the meeting to discuss possible settlement 
     of its claims against Hurwitz since OTS has not yet approved 
     any suit against Hurwitz or his holding companies and OTS' 
     participation at such meeting may be perceived by others as 
     an effort by the Executive Branch to influence OTS's 
     independent evaluation of its investigation.
     V. FSLIC Resolution Fund (``FRF'' Issues
       1. The Financial Institutions Reform, Recovery and 
     Enforcement Act of 1989 (``FIRREA'') (enacted Aug. 9, 1989), 
     accord special treatment to certain savings & loan 
     associations that failed prior to its enactment. The FRF 
     obtains its funds from the Treasury and all recoveries from 
     the assets or liabilities of all FRF institutions are 
     required to be conveyed to Treasury upon the conclusion of 
     all FRF activities. The statute does not establish a date for 
     the termination of the FRF. FRF fund always in the red due to 
     huge cost of these thrift failures.
       2. To date, FRF owes the Treasury approximately $46 
     billion.
       3. FDIC has decided that if Hurwitz offered the redwoods to 
     settle the FDIC claims, we would be willing to accept that 
     proposal. Because any assets recovered from FRF institutions 
     are required to eventually be turned over to Treasury, the 
     trees (i.e. the land conveyance) could conceivably be 
     transferred to Treasury.
       4. May need legislation to assist in transfer of land and 
     other details of such a conveyance. The mechanics of such a 
     transfer is not a focus of FDIC's current efforts which are 
     to persuade Hurwitz of liability and to seriously consider 
     settlement.
     VI. Impediments to FDIC Direct Action Against Trees
       1. FDIC has no direct claim against Pacific Lumber through 
     which it could successfully obtain or seize the trees or to 
     preserve the Headwaters Forest. Neither Maxxam, Inc. (which 
     owns Pacific Lumber and is controlled by Hurwitz) nor Pacific 
     Lumber are defendants in FDIC's suit. There is no direct 
     relationship between Hurwitz' actions involving the 
     insolvency of USAT and the Headwaters Forest owned by Pacific 
     Lumber. Pacific Lumber was acquired by Maxxam but does not 
     appear to have owned any interest in USAT or United Financial 
     Group, USAT's first-tier holding company. Moreover, neither 
     USAT nor UFG ever owned an interest in Pacific Lumber.
       2. FDIC's claims alone are not likely to be sufficient to 
     cause Hurwitz to offer the Headwater Forest, because of their 
     size relative to recent Forest Service appraisal of the value 
     of the Headwaters Forest ($600 million); because of very 
     substantial litigation risks including statute of 
     limitations, Texas negligence--gross negligence business 
     judgment law, and Hurwitz's role as a de factor director; and 
     the indirect connection noted above, including the risk of 
     Hurwitz facing suit from Pacific Lumber securities holders if 
     its assets were disposed of without Pacific Lumber being 
     compensated by either outsiders or Hurwitz or entities he 
     controls.

                                  ____
                                  

                               Record 34

     To: Jack D. Smith@LEGAL OGC Hdq@Washington
     From: Jeffrey Williams@LEGAL PLS2@Washington
     Subject: Hurwitz
     Date: Wednesday, October 25, 1995 11:51:51 EDT
     Certify: N
       Jack: I've talking with my DOD contacts in the Base 
     Closures Committee, particularly a guy named Joe Sikes. They 
     are interested in talking with us to educate themselves and 
     us (and other appropriate folks/agencies) on the 
     possibilities and difficulties of including a closed military 
     facility in a transaction with Hurwitz.
       He is discussing it with his folks and I think they would 
     be an asset to tomorrow's meeting, making the key point even 
     more clear that it will take more than FDIC's claims to get 
     the trees and that FDIC remains an important part of 
     exploring creative solutions to the issue.
       Let me know if they should be invited to the meeting.
                                                   Mosel Thompson,
                          Department Assistant Treasury, 632-2032.

                                  ____
                                  

                               Record 35


                 CONFIDENTIAL/PRIVILEGED COMMUNICATION

                        ISSUES FOR 10/26 MEETING

     I. FDIC Transfer of Assets Obtained in Settlement to Treasury
       a. FDIC lawsuit against Hurwitz filed on behalf of the 
     FSLIC resolution Fund (``FRF''), which was created by 
     Financial Institution Reform, Recovery and Enforcement Act of 
     1989 as successor to Federal Savings & Loan Insurance Fund. 
     The FRF is to be managed by the FDIC and separately 
     maintained and not commingled with any other FDIC properties 
     and assets. 12 U.S.C. sec. 1821a(1).
       b. Assets and liabilities of the FRF are not the assets and 
     liabilities of the FDIC and are not to be consolidated with 
     the assets and liabilities of the Bank Insurance Fund or the 
     Savings Association Insurance Fund for accounting, reporting 
     or for any other purpose. Id. at 1821a(3).
       c. The FRF is to be dissolved upon satisfaction of all 
     debts and liabilities. Upon dissolution, any remaining funds 
     shall be paid to Treasury. Id. at 1821a(f).
       d. There are no creditors of United Savings Association of 
     Texas, including uninsured depositors, that have a priority 
     over Treasury in any assets recovered by FRF. Currently, FRF 
     owes Treasury about $46 billion.
       e. Coastal Barrier Improvement Act of 1990 (Pub.L. 101-591) 
     imposes certain restrictions and procedures on the FDIC's 
     ownership and ability to transfer property that is within the 
     statute. 12 U.S.C. sec. 1441a-3. May enhance FDIC's ability 
     to transfer to other Federal agency.
       1. Unclear whether Headwaters Forest is within the scope of 
     the Act.
       2. Moreover, for the Act to apply to FDIC, title to land 
     must be held by FDIC in its corporate capacity. The lawsuit 
     and any potential recovery is in the capacity of FDIC as 
     Manager of the FSLIC Resolution Fund, and not in FDIC's 
     corporate capacity. FDIC must determine whether and, if so, 
     how, FRF can transfer title of assets to FDIC corporate. If 
     FRF can transfer title to Headwaters Forest to FDIC 
     corporate, and Forest is within scope of the Act, the Act 
     provides mechanism for FDIC to transfer title of assets 
     directly to Interior.
     II. Factors that Impede Settlement
       a. FDIC has no direct claim against Pacific Lumber 
     through which it could successfully obtain or seize the 
     Headwaters Forest. Neither Maxxam, Inc. nor Pacific Lumber 
     are defendants in FDIC's suit. Neither Pacific Lumber nor 
     Maxxam ever owned any interest in USAT or UFG, its holding 
     company. Hurwitz has not discussed directly with FDIC any 
     settlement of the FDIC's claims; although he has endorsed, 
     through Pacific Lumber's spokesperson and an October 22, 
     1995, interview published in The Press Democrat of Santa 
     Rosa, California, the concept of a transaction with the 
     Government that would include a land exchange.
       b. OTS has been investigating Hurwitz, other former 
     directors of USAT and UFG, Maxxam, and Federated Development 
     Company (a Hurwitz entity that owned part of UFG). We do not 
     know when OTS will commence proceedings against Hurwitz and 
     others.
       c. However, FDIC and OTS claims alone are insufficient to 
     exchange with Hurwitz in settlement for the Headwaters 
     Forest.
     III. Factors That Could Enhance Likelihood of Settlement
       a. New appraisal of Headwaters Forest. Old appraisal may be 
     inadequate in light of recent environmental, economic, and 
     other developments; and Hurwitz suggests need for new 
     appraisal in 10/22/95 interview.
       b. Identification of whether and how Treasury can hold and 
     transfer asset to Interior.
       c. Identification of other consideration from the 
     Government that may be of interest to Hurwitz.
       1. Closed military facility in Texas. Hurwitz already has 
     indicated interest in facility between Houston and Galveston, 
     Texas. FDIC has begun to discuss with Department of Defense 
     Base Closures Committee staff. Interior has apparently 
     identified some possible land.
       2. State of California has stated its interest in 
     participating in transaction by providing harvestable timber 
     land valued at between $40-60 million. Need to contact 
     Governor Wilson's office to pursue discussions with us.
       3. Evaluation of effect of tax losses to Pacific Lumber and 
     Maxxam for transfer of Headwaters Forest at less than fair 
     market value. Tax losses may be viewed by Hurwitz as 
     advantageous to Pacific Lumber and Maxxam, and may indirectly 
     result in minority shareholders acquiescence to transaction.
       4. California congressional delegation has shown 
     significant interest in Headwaters Forest and have been 
     receptive to efforts to conclude a ``debt for nature'' 
     transaction. Delegation may act as liaison between involved 
     parties and may be interested in proposing any legislation 
     needed to facilitate such transaction.
       5. No direct discussions have yet occurred between Hurwitz 
     and any involved agency over the Headwaters Forest 
     transaction. His recent interview suggests his interest in 
     such discussions with such representatives.

                                  ____
                                  

                               Record 36

     To: Jack D. Smith@LEGAL OGC Hdq@Washington
     From: John V. Thomas@LEGAL PLS@Washington
     Subject: re:
     Date: Friday, January 5, 1996 17:21:07 EST
     Certify: N
       Top 5 (for the top 10 list as well, I hope).
       4. United Savings. OTS has filed their notice of charges. 
     The statute has been allowed to run by us on everyone other 
     than Hurwitz. We have moved to stay our case in Houston, and 
     are awaiting a ruling. Two people, Munitz and Gross (I 
     think), have moved to intervene. And there is the question of 
     whether a broad deal can be made with Pacific Lumber.

                                  ____
                                  

                               Record 36A

       1/19/96.--Told Alan McReynolds that I had talked to Carolyn 
     Buck after lunch on 7/17/96. I asked whether OTS wanted to be 
     involved in discussions led by CEQ to respond to Hurwitz 
     suggestion about Headwaters. She said curtly, ``No''. I asked 
     if she had any objection to FDIC participating--she said that

[[Page E2500]]

     was not for her to decide. I concluded from her manner that 
     she did not intend to express an opinion and didn't want to 
     talk about it any more, so we parted without further 
     discussion. I advised Elizabeth Blaug about this yesterday 
     afternoon. I said that if Hurwitz wanted to have global 
     settlements with OTS and FDIC involved he would have to ask 
     for them just as happened with EY and Deloitte.

                                  ____
                                  

                               Record 37


                              Nov/Dec 1995

       Jeff Wms.--11:40 Thur 60648
       Nov 14 11:00
       722 Jackson Place, CEQ Conf Rm.
       Rick Sterns: Re Judge Hughes, 906-7966.
       Ross Delston: Parker Jane, Jack Shetman, 362-2260.
       Pat Bak: 60664.
       M. Palen: 60363.
       Ann Shopek: 212-973-3215.
       Judge Hughes--use of overlapping auth Harness
       Thur. order
       Carolyn talked to Ken Thur.

                                  ____
                                  

                               Record 38

       11/28/95--Headwaters mtg CEQ go GSA route to transfer from 
     Tres to Interior
       ``Cystal Barriers mgt Act''--
       ``12 U.S.C. 1441a-3''--RTC, FDIC property--
       KM--extremely accurate reports came back from 
     environmentalists--keep confidentiality physical assets may 
     not count as money for ``scoring.''
       Treasury cannot give FRF credit for the trees.
       If policymakers make decision to accept trees--increases 
     Fed. deficit--
       Insurmountable issue--there is a hole here if you take 
     trees.
       Interior disagrees with FDIC analysis of Costal Barriers 
     and they think it does work.
       Eliz.--our group will meet again to sift thru remaining 
     questions. No formal contacts until OTS files.
       John G--we are leaning toward FDIC opening discussions
       Lois--scoring problems were the biggest difficulties.

     60342 D.G.

       John G--after admin suit is filed it is time for opening 
     any discussions--prior to that we get back to K.M. to see if 
     there's any reason not to go forward with negotiations.

                                  ____
                                  

                               Record 39


        ATTORNEY-CLIENT/WORK PRODUCT CONFIDENTIAL COMMUNICATION

              DRAFT OUTLINE OF HURTWITZ/REDWOODS BRIEFING

     I. Introduction
       Significant development involving multi-Agency initiative 
     led by Office of the Vice President to obtain title to last 
     privately owned old growth virgin redwoods and place under 
     protection of Department of Interior's National Park Service. 
     FDIC plays prominent role in this Government initiative.
     II. Background--United Savings Association of Texas, Houston, 
         TX
     a. USAT failure--December 30, 1988--cost to FSLIC $1.6 
         billion
     b. FDIC as Receiver for USAT
       1. Investigation.
       2. Litigation.
       (i) Status of litigation.
     c. OTS--separate statutory enforcement authority
       1. ``Arrangement'' with FDIC.
       2. Investigation.
       3. Administrative enforcement action.
       (i) Status of ALJ proceeding.
     III. Pacific Lumber Company
     a. Maxxam
       1. Hurwitz as 60% owner, controlling shareholder of public 
     company.
       2. Maxxam's assets (Kaiser Aluminum; Sam Houston Race 
     Track; Real estate subsidiaries; Pacific Lumber).
     b. Hurwitz acquisition of Pacific Lumber
       1. During Hurwitz's USAT involvement.
       2. Relationship with Drexel Burnham Lambert and Michael 
     Milkin.
     c. Ownership of Headwaters Forest
       1. Northern Spotted Owl and Marbled Murrelet.
     c. Hurwitz management and logging policies of Pacific Lumber
     IV. Headwaters Forest
       a. Description--Northern California, near Eureka; 3,300 
     acres of Pacific Lumber's 195,000 acres; unlogged, 
     inaccessible, no roads; endangered species; Pacific Lumber's 
     only remaining valuable asset.
       b. Previous legislative initiatives--since 1983.
       c. Hurwitz's relationship with environmental community--
     always tense.
       1. Numerous picketing; spiking of trees; Earth First! and 
     others.
       d. Department of Interior's prior efforts to save 
     Headwaters Forest.
     V. FDIC and Headwaters Forest
       a. Pacific Lumber not a direct asset of USAT's.
       b. Environmental community focused attention of Congress on 
     existence of FDIC's ongoing investigation of USAT's failure.
       c. Chairman Helfer indicated in letter to The Rose 
     Foundation that FDIC would consider a proposal that includes 
     the Headwaters Forest in a settlement of claims against 
     Hurwitz if Headwaters asset was offered.
     VI. Status of Headwaters Forest Initiative
       a. FDIC working with CEQ, Interior, other agencies in 
     exploring viability of ``debt for nature'' settlement. Dated 
     US Dept. of Agriculture, Forest Service appraisal valued 
     Headwaters Forest at $499 million.
       b. FDIC made clear to all involved Government principals 
     that settlement value of FDIC [and OTS] lawsuits insufficient 
     to obtain Headwaters Forest, and US will have to find 
     additional assets to provide Maxxam.
       c. Under auspices of CEQ and Interior, numerous meetings 
     with Hurwitz exploring the concept that includes a swap of 
     other government-owned properties held by GAO as excess or 
     surplus land, and approved for sale under authority of 
     Department of Defense Base Realignment and Closure 
     Commission.
       1. Interior exploring various transactions that include 
     swaps of Pacific Lumber land with other private land owners; 
     providing Hurwitz with timber rights on other government 
     owned land; State of California to provide funds or timber 
     rights on state-owned land.
       d. Hurwitz recently agreed to provide Dept. of Interior 
     with access to conduct new, confidential appraisal of 
     Headwaters Forest.
       e. Hurwitz also expressed interest in exploring 
     availability of FDIC properties to ``bridge the gap'' between 
     value of Headwaters Forest and lawsuits.
       1. FSLIC FRF assets--few potentially valuable properties; 
     scraping bottom of barrel since properties from 1989 and 
     earlier failures.
       2. RTC FRF assets--more valuable properties in regions 
     Hurwitz/Maxxam currently conduct real estate operations.
       (i) Can FDIC swap assets of similar aggregate value between 
     funds to enhance liquidations of assets and likelihood of 
     resolution of receivership claim?
     VII. Recent Developments
       1. Hurwitz, on behalf of Pacific Lumber and its 
     subsidiaries, filed ``takings'' cases against the U.S. and 
     State of California alleging that the designation of 
     Headwaters Forest and Owl Creek (both owned by Pacific 
     Lumber) as ``critical habitat'' for the endangered species 
     Marbled Murrelet prevented Pacific Lumber from logging and 
     resulted in substantial lost revenue. The complaint seeks 
     more than $460 million in losses resulting from prohibition 
     on logging on 50,000 acres of Pacific Lumber land. The case 
     is being handled by the Justice Department. The filing of the 
     lawsuit is viewed by Interior and Justice as an attempt by 
     Hurwitz to nullify the FDIC and OTS lawsuits for purposes of 
     the ongoing discussion.
     VIII. CEQ's Projected Time Frame
       1. Discussions between Hurwitz and Government ongoing; 
     Hurwitz now making site visits to DOD and GSA properties.
       2. Interior's land exchange negotiations proceeding with 
     numerous parties.
       3. CEQ negotiators not discussing FDIC and OTS lawsuits as 
     part of Headwaters Forest transaction; Hurwitz 
     representatives from Patton Boggs law firm indicated their 
     expectation that ``all Government lawsuits'' will be resolved 
     as part of transaction.
       4. Hurwitz's counsel in FDIC litigation not raise 
     settlement, but have tangibly slowed pace of suit.
       5. Interior projects transactions can close in September 
     1996.

                                  ____
                                  

                               Record 40

                                  CEQ

     722 Jackson Place, NW, Washington, DC 20503, Phone (202) 395-
         5750, FAX (202) 456-6546


                            FAX TRANSMISSION

     Date 8/8/96
     To: Jack Smith
     Phone Number:
     FAX Number: 898-7394
     Subject of Material: 4 Questions on Headwaters. Thank you so 
         much, this will really help in clearing up major 
         misperceptions! How quickly can you turn this around? (I 
         ask for so little, don't I?) EB
     From: Elisabeth Blaug
     No. of Pages (including Cover Sheet) 2
     736-0577--Bob D. fax
     456-0753--Elizabeth B. fax


                               Questions

       Q1. Why is the Administration willing to swap land with 
     Charles Hurwitz when his very actions in acquiring Pacific 
     Lumber Company led to lawsuits filed against him by the FDIC 
     and Office of Thrift Supervision? Why doesn't the 
     Administration forget the land exchanges and get Hurwitz to 
     settle his debts in exchange for the trees?
       A1. would be inappropriate because of independent status of 
     regulators, pending litigation/administrative proceeding. . . 
     .
       Q2. In light of question 1, why can't FDIC or OTS bring up 
     a debt-for nature settlement with Charles Hurwitz?
       A2. ??
       Q3. Charles Hurwitz's purchase of Pacific Lumber led to a 
     $1.6 billion collapse of a Texas Savings & Loan; that amount 
     is likely more than enough to cover the acquisition of all 
     the old growth redwoods on Palco property. Why then is the 
     Administration looking for excess property to exchange?
       A3. ??
       Q4. If the regulations are not actually seeking $1.6 
     billion, what monetary damages are they seeking against 
     Hurwitz?
       A. ??
       1. There is no direct relationship between the Headwaters 
     Forest and the actions of Mr.

[[Page E2501]]

     Hurwitz with respect to the insolvency of United Savings 
     Association of Texas (``USAT''). Moreover, Pacific Lumber 
     Company is not a defendant in either lawsuit. Although 
     Pacific Lumber was acquired by Maxxam, it does not appear 
     that Pacific Lumber owned any interest in USAT or United 
     Financial Group, Inc. (``UFG''), USAT's first-tier holding 
     company.
       The Administration cannot dictate a debt for nature 
     settlement with Mr. Hurwitz because the FDIC and OTS are 
     independent regulatory agencies with separate and distinct 
     statutory and fiduciary responsibilities. The Administration 
     is prohibited by law from directing the outcome of any action 
     commenced by FDIC or OTS in the performance of either 
     agency's official duties.
       2. The statutory framework for action commenced by FDIC and 
     OTS require the agencies to seek recovery for losses incurred 
     to the insurance funds and appropriate civil money penalties. 
     The agencies are chartered to recover money, not to establish 
     national parks. They often initiate settlement discussions to 
     recover money or assets which can be converted to money. For 
     example, the OTS has already settled some issues related to 
     the USAT failure for a $9.4 million payment from USAT. 
     Nevertheless, the FDIC is open to any appropriate settlement 
     of its claims including a debt for nature swap should Mr. 
     Hurwitz make such a proposal.
       3. Neither the FDIC or the OTS are suing Mr. Hurwitz for 
     $1.6 billion. Although the agencies believe that Mr. Hurwitz' 
     conduct resulted in significant losses to USAT, both suits 
     seek damages and restitution for mismanagement and gross 
     negligence that are directly attributed to specific acts and 
     transactions within the applicable statute of limitations.
       4. The FDIC suit against Mr. Hurwitz seeks damages in 
     excess of $250 million. The OTS administrative enforcement 
     proceeding seeks reimbursement for losses to the insurance 
     funds in an unspecified amount to be proven at trial.

                                  ____
                                  

                               Record 41

     To: John V. Thomas@LEGAL PLS@Washington, Stephen N. 
         Graham@DAS Ops@Washington, Richard T. Aboussie@LEGAL 
         ASIS@Washington, Henry R.F. Griffin@LEGAL 
         ASIS@Washington, Robert DeHenzel@LEGAL PLS@Washington, 
         Jeffery Williams@LEGAL PLS@Washington
     Cc: William F. Kroener III@LEGAL OGC Hdq@Washington, Leslie 
         A. Woolley@Washington, Robert Russell 
         Detail@EO@Washington
     Bcc:
     From: Jack D. Smith@LEGAL OGC Hdq@Washington
     Subject: USAT
     Date: Friday, September 6, 1996 9:05:59 EDT
     Attach:
     Certify: N
     Forwarded by:
       John Douglas called and we are going to have a settlement 
     meeting Monday or Tuesday with Douglas and OTS. Douglas 
     indicates that he will propose that the FDIC take certain 
     redwood trees which we will exchange for other marketable 
     property from perhaps Interior. FDIC would then be able to 
     sell the property it gets from Interior.
       Douglas says there are tight deadlines and he wants to try 
     and wind up the negotiations by Wednesday. The FDIC 
     settlement delegation will be the General Counsel, myself, 
     Steve Graham and Jeff Williams. If a realistic proposal is 
     submitted approvals. Therefore, Jeff is blocking out a 
     settlement authorization memo with the terms to be filled in 
     later.

                                  ____
                                  

                               Record 42

     To: Henry R.F. Griffin@LEGAL ASIS@Washington, Jeffrey 
         Williams@LEGAL PLS@Washington, Robert DeHenzel@LEGAL 
         PLS@Washington, John V. Thomas@LEGAL PLS@Washington
     Cc:
     Bcc:
     From: Jack D. Smith@LEGAL OGC Hdq@Washington
     Subject: Headwaters
     Date: Monday, September 16, 1996 18:10:50 EDT
     Attach:
     Certify: N
     Forwarded by:
       I am advised that the draft settlement proposal we received 
     from Patton Boggs has been discarded by Interior so we need 
     not review it in detail.
       As to the Qui Tam case, my understanding is that it will 
     not be part of this deal, and may proceed even if there is a 
     government settlement. We will continue on our separate 
     settlement track only if OTS is able to reach an 
     understanding with Hurwitz about removal and prohibitions.

                                  ____
                                  

                               Appendix 3

                             Document DOI-A

         United States Department of the Interior, Office of the 
           Secretary,
                                 Washington, DC, January 23, 1995.


                               Memorandum

     To: Anne Shields, Chief of Staff
     From: Allen McReynolds, Special Assistant to the Secretary
     Subject: Update on Headwaters Forest
       I am forwarding three (3) pieces of information which will 
     provide an update on the Maxxam/Pacific Lumber Company--owned 
     Headwaters Forest in northern California.
       1. OTS Filing. The U.S. Office of Thrift Supervision of the 
     Department of the Treasury filed their lawsuit against United 
     Savings Association of Texas and related Maxxam parties on 
     December 26, 1995. Maxxam's attorneys have requested 60 days 
     in order to respond to the charges; the deadline is February 
     19. The next step will be for the judge to schedule a hearing 
     to review the charges and responses.
       2. Houston Chronicle Editorial. Attached is the editorial 
     written by Charles Hurwitz, C.E.O. of Maxxam, which appeared 
     in the Houston Chronicle on January 14. In his editorial, he 
     describes the environmentalists' activities as hostile and 
     inappropriate actions. The Debt-for-Nature swap concept is 
     discussed on page 3.
       3. H.R. 2712--Acquisition of Headwaters Forest. Congressman 
     Frank Riggs of Eureka introduced a bill on December 5, 1995 
     for the acquisition of Headwaters Forest through a land 
     exchange and timber exchange on BALM lands in northern 
     California. My contact on the committee tells me that no 
     action has occurred thus far, but that it is likely that this 
     bill will be pushed by Mr. Riggs and his colleagues later 
     this month.
       4. Next Step. You may recall that the filing by O.T.S. of 
     their suit was the step which would release O.T.S. and 
     F.D.I.C.'s legal staffs to initiate a meeting with Mr. 
     Hurwitz and/or his counsel. I have spoken to O.T.S. attorneys 
     managing this suit, and they continue to insist on an arms-
     length relationship with any public efforts to acquire 
     Headwaters through a Debt-for-Nature Swap. They are of the 
     opinion that it would disadvantage their chances of a fair 
     and legal proceeding if they were to be engaged in high-level 
     discussions with Administration staff. Thus, that leaves the 
     meeting and any negotiations for an out-of-court agreement to 
     the F.D.I.C. legal team. They called Katie McGinty last week 
     and requested that Interior's attorneys be a part of any 
     meetings and negotiations with Hurwitz/Maxxam arranged to 
     test Maxxam's interest in a global settlement. They argue 
     that F.D.I.C. does not know the asset (Headwaters Forest) or 
     the current efforts by the environmentalists/FWS/State of 
     California to halt timber harvesting on E.S.A. grounds (the 
     marbled murrelet habitat) as well as Interior.
       I believe that Katie may contact you about the 
     appropriateness of the Department's involvement to get the 
     meetings off of the ground.
       Thank you for your attention to these issues.
       Attachments (3).

     cc: John Garamendi, George T. Frampton, Jr., Bob Armstrong, 
         Bonnie Cohen, John Leshy, Bob Baum, Jay Ziegler

                                  ____
                                  

                             Document DOI-B

         United States Department of the Interior, Office of the 
           Secretary,
                                   Washington, DC, August 2, 1995.


                               Memorandum

     To: George T. Frampton, Jr., Assistant Secretary, Fish and 
         Wildlife and Parks
     From: Allen McReynolds, Special Assistant to the Secretary
     Subject: California Headwaters Forest Acquisition
       Recently, the Secretary received a letter from the 
     Congressional delegation from northern California requesting 
     assistance in the acquisition of a 44,000 acre parcel of 
     timbered lands owned by Maxxam Corporation of Texas (see 
     attached). You may remember that Hamburg and Boxer attempted 
     to appropriate funds in 1994 (see H.R. 2866 attached). 
     Maxxam, owned by Charles Hurwitz of Houston, conducted a 
     leveraged buyout of Pacific Lumber in the late 1980's to 
     acquire 184,000 acres of timber for $900,000,000. You will 
     recognize that these tracts are a part of the habitat for the 
     marbled murrelet (see attached article).
       To repay the bonds secured for the purchase, Mr. Hurwitz 
     has stepped up the cutting schedule worked out with P.L.'s 
     former owners. On September 15, 1995, the moratorium on 
     logging the old-growth portion of Maxxam's un-logged tracts 
     will expire. Thus, the Congressional delegation and the 
     environmental community are inquiring if Interior can devise 
     some creative acquisition strategies. They also wrote to the 
     Forest Service, but the Forest Service had no suggestions on 
     how to acquire the property.

                        I. Acquisition Strategy

       In response to the delegation's request, several staff from 
     Interior began to review the possibilities that exist for 
     acquiring the 40,000 acre tract through creative land 
     exchanges. A summary of these follows:

                  A. Governor's Headwaters Task Force

       Governor Wilson created a Headwaters Task Force several 
     months ago to look at strategies for acquiring these acres. 
     Representing Interior are Ed Hasty, BLM State Director, and 
     Phil Detrick, FWS. The Governor's Office has decided to seek 
     State legislation to trade approximately $70,000,000 in lands 
     owned by The California State Lands Commission for Headwaters 
     tracts. The Governor's Office would like for Interior to 
     put lands up for trade to match their strategy. Terry 
     Gorton, the Governor's negotiator, has met with Hurwitz 
     and thinks the acreage could be had for a sum less than 
     the Forest Service's appraisal of $500,000,000.

[[Page E2502]]

                  B. DOI Acquisition by Land Exchange

       The California Desert Protection Act and the Natural 
     Communities Conservation Program (NCCP) have consumed all of 
     BLM's lands which were available for disposal in California. 
     Thus, BLM, nor FWS for that matter, has any trading stock 
     within California which is available for such a transaction.

                C. Military Base Closure Land Exchanges

       The American Lands Conservancy (ALC), also a member of the 
     Governor's Task Force, has reviewed with the Governor's 
     Office the potential of acquiring small acreages at closing 
     military bases in northern California. Hamilton AirField, 
     located in the Bay Area, recently sold a tract for 
     $10,000,000 to a local developer. The Governor would like to 
     capture these funds and others as bases are sold piecemeal 
     across the area. Because of our unsuccessful efforts at El 
     Toro Marine Corps Air Station, we have made it clear that 
     Interior will not front this concept for consideration. It is 
     anticipated that ALC will provide a report to the delegation 
     regarding the opportunities at Bay Area military base 
     closures.

                        II. Debt for Nature Swap

       The Federal Deposit Insurance Corporation and the Office of 
     Thrift Supervision have claims against Charles Hurwitz and 
     United Savings of Texas which they are preparing to pursue 
     (see attached article). The FDIC claims result from mortgage-
     backed securities trading. The OTS claims result from 
     networth-maintenance claims. The total of these two claims is 
     in excess of the appraised fair market value of the 40,000 
     acres of old growth redwood timber that the Department is 
     seeking to protect. Thus, there has been some support for a 
     debt-for-nature swap for FDIC and OTS's claims for the 40,000 
     acres. FDIC and OTS are amenable to this strategy if the 
     Administration supports it.
       Attached is a copy of the Complaint and Jury Demand on 
     behalf of the FDIC. The Board of the FDIC approved this 
     action late yesterday. The OTS is expected to take similar 
     action no later than mid-October.

                            III. Next Steps

       Those of us working on this (Jay Ziegler, Tom Tuckman, 
     Geoff Webb, and me) are seeking guidance from you on how to 
     proceed. The possible next steps are as follows:
       Request a group meeting (Interior, FDIC, OTS) with the 
     Department of Justice to learn their view on a Debt-for-
     Nature Swap concept for FDIC and OTS's claims.
       Annoint a DOI Team to represent the Department in the 
     negotiations with Hurwitz (should FDIC and OTS wish to have 
     us at the table).
       Determine which Interior agency would be the most 
     appropriate for the long-term ownership and restoration of 
     the acreage. (BLM has suggested that they are in the best 
     position to do so. A similar argument can be made for the 
     Park Service. The Forest Service may have notions that they 
     are most appropriate.) Your recommendation early will reduce 
     conflict about expectations.
       Determine what Interior's involvement may mean for the 
     Department from a policy perspective.
       Thank you for your attention to this project. It appears to 
     represent an opportunity for the Department to resolve long-
     standing problems on the Headwaters Forest.

                              Attachments

     --March 24, 1995 Letter to Secretary Babbitt
     --Headwaters Forest Act, H.R. 2866
     --Briefing Paper on the History of the Act
     --FDIC Action
     --Wall Street Journal Clipping
     --The Oregonian Clipping
     --BLM Statement on Old Growth Reserve System
     cc: Jay Ziegler, Geoff Webb, Tom Tuckman, Larry Mellinger
       Following is a list of individuals with whom I have worked 
     in the recent past on projects for the Secretary's Office who 
     I consider very trustworthy. I cannot say that they have a 
     specific background in base conversion sites, but they are 
     certainly well schooled in commercial real estate 
     development, hotel development, and residential development 
     in California.

     Bruce Karatz, President, Chairman & CEO, Kaufman and Broad, 
         10877 Wilshire Boulevard, 12th Floor, Los Angeles, CA 
         90024, 310/443-8000, 310/443-8090(fax)
     Richard M. Ortwein, President, Koll Real Estate Group, 4343 
         Von Karman Avenue, Newport Beach, CA 92660, 714/833-3030, 
         ext. 249, 714/474-1084 (fax)
     William (Bill) D. Sanders, Chairman, Security Capital Group, 
         Inc., 125 Lincoln Avenue, 3rd Floor, Santa Fe, New Mexico 
         87501, 505/820-8214

                                  ____
                                  

                                        TABLE 27--TIMBER FOREST LAND AND HARVESTED BY STATE--FISCAL YEAR 1996 \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Timber sold                                  Timber harvested
                                                          ----------------------------------------------------------------------------------------------
                State or Commonwealth \2\                                                          Bid value \3\                       Receipts  (Actual
                                                                 Sales         Volume (MBF) \4\   (Actual dollars)   Volume (MBF) \4\       dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama..................................................                738           58,25516       5,220,330.40          60,244,36       5,490.493.12
Alaska...................................................                 73          96,221.17       3,193,047.40         223,085.32      12,720,486.11
Arizona..................................................             12,949          52,419.49       2,170,611.75          69,106.74       7,446,270.20
Arkansas.................................................              2,660         185,103.51      26,013,244.60         151,300.05      18,005,184.88
California...............................................             49,576         379,258.44      38,576,576.44         451,087.80     104,815,692.01
Colorado.................................................            12,9918          53,941.20       8,138,155.95          95,977.22       9,423,741.94
Florida..................................................                111          49,981.98       4,234,629.90          86,472.94       4,306,776.06
Georgia..................................................                711          31,016.23       2,820,821.23          28,347.81       2,664,177.27
Idaho....................................................             22,380         222,615,72      41,560,133.94         341,691.81      52,130,728.74
Illinois.................................................                102             105,00           1,060.00           2,706.85          50,545.45
Indiana..................................................                 28             901.11          18,032,23             318.81          10,711.33
Kentucky.................................................                627          10,593,61        1055,056.30          12,161.61         950,831.40
Louisiana................................................                545          63,634.92      10,207.970.60          64.283.28       7,495,880.81
Maine....................................................                 10           1,058,00          36,312.80           1,838,32         119,770.03
Michigan.................................................                788         156,494,94       9,926,226.26         209,024.84       8,771,130.09
Minnesota................................................                226         134,345,76       9,002,381.02         158,784.20       5,700,740.60
Mississippi..............................................              2,187         210,914.00      29,003,000.99         193,481.18      27,144,509,31
Missouri.................................................              1,008          49,428.74       5,276,548.68          55,220.06       4,521,709.80
Montana..................................................             13,673         129,802.01      22,743,183.11         165,720.79      34,919,522.78
Nebraska.................................................                  6               9.00              90.00               9.00             90.000
Nevada...................................................              1,976           2,398.45          31,964.90           5,185.33          91,550.48
New Hampshire............................................                167          24,061.86       1,305,896.26          18,074.46         806,351.80
New Mexico...............................................             15,325          33,125.53       1,063,826.41          50,450.45       1,212,648.08
New York.................................................                  2             350.00          37,986.04             130.00       1,212,648.08
North Carolina...........................................                  2             359.00          37,985.04             130.00          15,951.23
North Dakota.............................................                 31              44.00             440.00              44.00             440.00
Ohio.....................................................                 81           1,506.59        145,7737.84             749.00          15,270.01
Oklahoma.................................................                 86          13,123.41       2,061,781.43          17,661.37       2,185,716.19
Oregon...................................................             31,667         287,530.27      46,025,886.49         890.346.37     190.049.139.70
Pennsylvania.............................................                116          48,266,54      19,267,848.09          53,969.00      19,416,426.38
South Carolina...........................................                422          42,326,28       4,494,402.00          40,421.87       4,337,908.67
South Dakota.............................................              1,975          80,038.14      20.797.208.22          64,769.22      10,233,556.00
Tennessee................................................               3389          10,708.10         682,872.16          17,646,38       1,104,127.42
Texas....................................................                271          71,145.50      14,440,168.25          85,313.13      10,571,472.23
Utah.....................................................              7,193          35,800.38       3,823,404.79          32,032.53       2,031,590.20
Vermont..................................................                100           4,240.23         848,496.94           4,779.77         413,084.25
Virginia.................................................              2,849          35,161.57       2,720,811.90          49,923.65       3,125,306.77
Washington...............................................              9,541         113,490.23     13,777,6336.51         186,719.57      39,451,797,22
West Virginia............................................                453          25,957.23       6,354,919.12          27,547.01       4,522,428.71
Wisconsin................................................                627           96,12.35       5,570,711.41         129,645.84       4,628,848.22
Wyoming..................................................                627          98,121,35       5,570,711.41         129.645.54       4,522,448.71
                                                          ----------------------------------------------------------------------------------------------
      Total..............................................            216.272       2,885,261.53         280,736,06       3,985,912.03    616,117,347.02
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Excludes nonconvertible products such as Christmas, trees, cones, burls etc.
\2\ States no listed had no timber sold or harvested in fiscal year 1996.
\3\ Includes reforestations and stand improvement costs and timber salvage. Does not include value of roads or brush disposal.
\4\ MBF = thousand board feet.


[[Page E2503]]

                                  ____
                                  

United States Department of Agriculture: Report of the Forest Service, 
                            Fiscal Year 1995

Conservation Leader . . . sustained health, diversity, and productivity 
                          of all forest lands

                                               Dun & Martinek LLP,


                                             Attorneys at Law,

                                        Eureka, CA, July 17, 1996.
     Hon. J. Michael Brown,
     Judge of the Superior Court, Humboldt County Superior Court, 
         Eureka, CA.
     Re: Epic v. California Department of Forestry, Humboldt 
         County Superior Court Case No. 96CR0420
       Dear Judge Brown: We just received a copy of your minute 
     order dated July 15, 1996. We have been advised by the Clerk 
     of the Appellate Court that Petitioners applied for a 
     temporary stay from the Appellate Court and were denied. The 
     Appellate Court, according to the Clerk, has denied any and 
     all injunctive relief on this Plan.
       It would therefore seem that there is no need for the 
     Superior Court to issue a temporary stay because there will 
     be no stay forthcoming from the Appellate Court.
       Workers have been on site since Monday, July 15, 1996.
       Please advise immediately as to whether we must now suspend 
     operations until July 22, 1996.
           Very truly yours,
                                                     David H. Dun.

                                  ____
                                  

                             Document DOI-C

         United States Department of the Interior, Office of the 
           Secretary,
                                  Washington, DC, August 16, 1995.


                               Memorandum

     To: Jay Ziegler, Geoff Webb, Tom Tuckman
     From: Allen McReynolds, Special Assistant--Land Exchanges
     Subject: Update on California Headwaters Forest Project
       A couple of new developments have emerged in the past 
     several days. The following is an update on these issues:

                        1. Red Emerson Acreage.

       I believe that I shared a letter with you that I received 
     on August 4 from EPIC regarding logging in Headwaters Grove. 
     The letter requests assistance in resolving the conflict of 
     the current logging of S.P.I.'s holdings in the grove, which 
     is permissible under Timber Harvest Plan 1-93-096, and 
     preservation of the watershed protection along the Little 
     South Fork of the Elk River. I left for vacation before 
     looking into the issue so I was unprepared with a response 
     when Perry deLuca of Congressman Stark's office called on 
     Monday requesting assistance. He requested that I call Mr. 
     Red Emerson of Sierra Pacific Industries and question him 
     about any possible opportunity to acquire this land.
       In brief, Mr. Emerson and his children are the sole owners 
     of Sierra Pacific Industries. S.P.I. owns over 1,200,000 
     acres of timber lands in California and 10 sawmills ranging 
     from the Tahoe Basin north and west. Currently, S.P.I. is 
     working on three land exchanges with BLM and the Forest 
     Service across northern California to consolidate 
     checkerboard holdings. At Little South Fork (about which EPIC 
     is concerned), there are 9,600 acres under ownership personal 
     of Mr. Emerson, not S.P.I. He has a 56% ownership; his 
     partner has a 44% stake. The acreage is timbered by second 
     and third growth. He would be willing to either sell or 
     exchange the acreage if we wish to do so. However, he did 
     state that, in his opinion, the land has no resource value 
     because it does not contain any old growth attributes.
       I shared this information with Mr. deLuca. The 
     Congressman intends to call Mr. Emerson to follow up and 
     explore options. Also, the staff will investigate if Mr. 
     Emerson's holdings were included in Hamburg's Headwaters 
     legislation. I will call Ed Hasty and attempt to learn 
     more about BLM's relationship with Mr. Emerson and whether 
     we have a resource evaluation of these holdings.

            2. Telephone Conference Call With OTS and FDIC.

       Yesterday afternoon we held a telephone conference call 
     with staff of the Federal Deposit Insurance Corporation and 
     Office of Thrift Supervision to share information. 
     Participating in the call were Richard Sterns and Bruce 
     Renaldi of OTS, Jack Smith of FDIC, Larry Mellinger and me of 
     DOI. Also invited but not joining in were Tom Jensen of CEQ, 
     Jay and Geoff.
       The OTS staff were reluctant to share their work on a claim 
     against Hurwitz/Maxxam because of the appearance that 
     Interior might be attempting to influence policy at OTS. We 
     applauded them for that foresight and did not press for 
     information. They did state that OTS has not filed a claim 
     yet; however, if they decide to file, it will be soon. As 
     soon as that decision is made, they offered to notify DOI and 
     FDIC. I requested that they continue to seek information from 
     us should it be useful.
       The FDIC reminded all of us that their claim against Maxxam 
     is ``owned'' by FSLIC's Resolution Account. This account has 
     $48B already on deposit from claims. Therefore, it might be 
     viewed positively by Congress for Treasury to accept redwood 
     forest property in lieu of cash payment and, then, redirect 
     title of the acreage to DOI.
       The OTS staff would not comment on such a strategy for 
     their claim against Maxxam.
       There was some interest in the notion that the delegation 
     would request acreage at northern California military base 
     closures to offer as land swaps to Hurwitz. No matter how 
     much caution I expressed on this topic, the FDIC and OTS 
     staff encouraged support. I explained that the American Lands 
     Conservancy would probably present a proposal to the 
     delegation soon, but that DOI would not be a party to it.
       I shared the conversation that I had recently with Terry 
     Gorton of Governor Wilson's office. FDIC and OTS are 
     wondering why DOI is not being more aggressive with Hurwitz 
     and is permitting Wilson's Task Force to take the lead. Based 
     on this, perhaps we should revisit DOI's position and our 
     participation in the negotiations. Because Patton/Boggs 
     attorneys are reaching out to DOI for a meeting, DOI could 
     meet with them for exploratory purposes.

                        3. Meeting with Justice.

       You will recall that Tom Epstein encouraged DOI staff to 
     meet with Justice officials to insure no potential conflict 
     on DOI's side of this issue. Larry Mellinger visited with 
     Jack Smith at some length about this. He learned that FDIC 
     does not intend for Justice to represent them on this case. 
     Most likely, OTS will also keep their claim internally also. 
     Therefore, Mr. Smith wonders if DOI really needs to be 
     concerned about this. Larry has offered to confer with Bob 
     Baum and John Leshy and relate their sense of whether a 
     meeting or concern is warranted.
       Thanks for your attention. Please call me if you want 
     further elaboration on any of these points.

     cc: Larry Mellinger, Solicitor's Office

                                  ____
                                  

                             Document DOI-D

         United States Department of the Interior, Office of the 
           Secretary,
                                  Washington, DC, August 23, 1995.


                               memorandum

     To: George T. Frampton, Jr., Assistant Secretary, Fish and 
         Wildlife and Parks
     From: Allen McReynolds, Special Assistant--Land Exchanges
     Subject: Headwaters Forest Acquisition
       In the past several weeks, the staff at Interior have 
     continued to receive telephone calls from the Northern 
     California delegation encouraging Interior to pursue 
     strategies for acquisition of the old growth acreage owned by 
     Charles Hurwitz and the Maxxam Corporation. Among those 
     considered, the Debt-for-Nature Swap strategy is the concept 
     which their telephone calls focus on most.
       Today, Congressman Stark's staff forwarded copies of the 
     letters which they are generating for their colleagues in the 
     Northern California delegation to forward to the F.D.I.C. In 
     addition, the LA Times notified their office today that it 
     will publish an editorial (see attached) on the subject 
     penned by Mr. Stark and Mr. Brown as early as tomorrow or 
     Monday.
       While we continue to downplay our role in these efforts 
     with the delegation's staff, they continue to call upon us to 
     play a leadership role. I sense that because Interior might 
     own any land acquired through negotiations, they feel that 
     Interior should be orchestrating the solution. My impression 
     is that there is an expectation by the delegation that 
     Interior is the most appropriate agency to negotiate the 
     Federal Government's case with Maxxam, instead of the 
     F.D.I.C. or O.T.S. or even Justice. In fact, the delegation 
     may soon expect Interior to arrange a meeting with Maxxam--a 
     rather bold move.
       I would enjoy an opportunity to visit with you about this 
     issue at your earliest convenience to avoid any confusion 
     about the pressure that we are receiving and can expect to 
     continue to receive.
       Thank you for your attention.
     Attachments: Update on Project, Analysis of Red Emerson's 
         Property, U.S. Forest Service Report, LA Times Editorial, 
         Delegation Letter to F.D.I.C.
     cc: Tom Tuchmann, Jay Ziegler, Geoff Webb

                                  ____
                                  

                  Talking Points of Headwaters Forest

       Headwaters Forest is a 3,000 acre stand of old growth 
     redwood forest, near Humboldt, CA. Pacific Lumber Company and 
     its subsidiaries, which is owned by MAXXAM, Inc, owns 
     Headwaters, and the additional 195,000 acres of timberland 
     which surround Headwaters. Headwaters was appraised several 
     years ago at $499 million. Many believe the figure is 
     inflated, due to other circumstances, including injunctions 
     in connection with marbled murrelet habitat, which until 
     recently precluded any logging of Headwaters.
       Charles Hurwitz is a major owner in MAXXAM; the FDIC and 
     Office of Thrift Supervision both filed lawsuits (now 
     pending) in the hundreds of millions of dollars against 
     Hurwitz and MAXXAM, alleging, among other things, a 
     connection between the failure of United Savings Association 
     of Texas, a MAXXAM subsidiary, and the purchase of Pacific 
     Lumber.
       Headwaters is of great importance to Californians 
     (particularly northern California), including Governor 
     Wilson. Over the last 6-8 months or so, the Democratic 
     congressional delegation (individually and collectively) and 
     environmentalists have called on the Administration to 
     acquire Headwaters.

[[Page E2504]]

       In February Katie McGinty and John Garamendi met with 
     Hurwitz and his Washington representative, Tommy Boggs. 
     Several ideas for Headwaters acquisitions or conservation 
     were discussed, including a land swap, which could 
     potentially incorporate a ``debt-for-nature'' piece in which 
     pending litigation against Hurwitz could be settled.
       In April a confidentiality agreement was signed between the 
     Department of Justice and Hurwitz's representatives; 
     subsequently representatives from CEQ, FDIC, Departments of 
     Justice and Interior, and White House Counsel have been 
     meeting with Hurwitz and his representatives to identify 
     potential government surplus properties which could be part 
     of the deal. Hurwitz has expressed particular interest in 
     Treasure Island, and several military bases in California and 
     Texas. California tentatively offered to throw into the 
     ``pot'' the timber rights to LaTour state forest, in the 
     Sierra Range north of Redding.
       In recent weeks several key decision have occurred: (1) 9th 
     Circuit ruled timber salvage can now take place on 
     Headwaters; logging can proceed on September 15, the last day 
     of the marbled murrelet mating season; (2) However, the 
     lifting of the Endangered Species Act moratorium means the 
     marbled murrelet will be listed in the next couple weeks. 
     Hurwitz must prepare a timber harvest plan and a Habitat 
     Conservation Plan before logging.
       Last week Hurwitz filed a takings claim against the U.S. 
     Fish and Wildlife Service, arguing the ESA is reducing the 
     value of his property. The lawsuit inexplicably values 
     Headwater at only $166 million. An appraisal until now be 
     acquired by Department of Justice, which was previously being 
     initiated by the Bureau of Land Management and California.
       Katie McGinty and John Garamendi convened an interagency 
     meeting yesterday to discuss strategies in light of the 
     lawsuit. Discussions between Hurwitz and Administration 
     representatives have ceased pending a hard look at key 
     issues, including a Department of Justice review of the 
     litigation aspects, and a meeting between Hurwitz and 
     Garamendi is scheduled, in order to ascertain Hurwitz's 
     intent.

                                  ____
                                  

                             Document DOI-E

       Note to Geoff, Jay, and Tom: I visited briefly with George 
     yesterday as he was running out of town to go on vacation 
     about Headwaters. He said that he had quickly looked over my 
     memo and had a few thoughts about it. First, he was 
     comfortable that we would continue to look for options to 
     purchase the property, including the FDIC and OTS lawsuits. 
     He does not have a problem with us attending meetings to 
     pursue the Debt-for-Nature Swap concept as long as we do not 
     attempt to take the lead on such a proposal. Second, he feels 
     that the Debt-for-Nature Swap has such a low likelihood of 
     success that he would encourage us to not invest a great deal 
     of time on it. Having said that, he hoped that the situation 
     would not have moved much while he was on vacation.
       Attached is a copy of the letter that I received from EPI 
     yesterday. I know little about our relationship with Sierra 
     Pacific Industry and its subsidiary Elk River Timber. What 
     suggestions do you all have about our response?
                                                            Allen.

                                  ____
                                  

                             Document DOI-F

         United States Department of the Interior, Office of the 
           Secretary,
                                 Washington DC, September 25, 1995
     Memorandum For: Katie McGinty, Council on Environmental 
         Quality, T.J. Glauthier, Office of Management and Budget
     From: Assistant Secretary for Fish & Wildlife & Parks
     Subject: Proposed Meeting.
       News media and congressional attention will likely focus on 
     the Headwaters Grove in Northern California this week as 
     Pacific Lumber (Maxxam Corp.) is likely to gain court 
     approval for its a timber salvage operation there. The U.S. 
     Fish and Wildlife Service and State Fish and Game biologists 
     have been working closely with P-L at their request to ensure 
     that this harvest program will not cause the ``take`` of 
     marbled murrelets which would trigger enforcement under the 
     Endangered Species Act. This particular salvage operation 
     involves only the removal of fallen trees (primarily through 
     helicopter logging) and does not encompass any cutting of 
     standing trees. Nonetheless, we anticipate substantial 
     protests in the forest and the surrounding area. 
     (Approximately 2,000 environmental protesters organized a 
     demonstration outside of a marbled murrelet critical habitat 
     hearing last week in Eureka, CA.)
       Since it is very unlikely that there will be ``take''--
     based on the willingness of P-L to work with State and 
     Federal biologists--we are in a position where we need to 
     carefully weigh our options for future actions relating to 
     the Headwaters. The Wilson Administration has maintained a 
     public position that they are very interested in acquiring 
     the Headwaters Forest, but to date have not been able to 
     structure a purchase or land exchange package that attracts 
     much interest from Maxxam. Since two of these suits (FDIC and 
     False Claims challenge) have been publicly filed within the 
     last few weeks, I believe that we have reached a juncture 
     where we need to consider whether it is prudent to utilize 
     this legal leverage in the context of a Headwaters 
     acquisition strategy.
       Two recent lawsuits have been filed against Maxxam and 
     Hurwitz arising out of the failure of his United States 
     Association of Texas:--A $250 million claim by the FDIC; and 
     an even larger private lawsuit under the False Claims Act 
     seeking restitution for federal taxpayers in the billions of 
     dollars.
       In light of increased calls for a ``debt for nature swap in 
     which the federal government would seek to acquire Headwaters 
     in exchange for release of the FDIC claims (see yesterday's 
     San Francisco Chronicle editorial, attached), I think we need 
     to consider whether the Administration can and should take 
     coordinated action to evaluate and possibly consider such an 
     approach.
       I propose that one of you convene interested Federal 
     parties including the U.S. Forest Service, FDIC, Office of 
     Thrift Supervision, U.S. Fish and Wildlife Service, CEQ, DOJ 
     and OMB to analyze options that might be available to us. 
     Given the crescendo of public attention that is ahead of us, 
     I suggest we try to do this ASAP albeit consistent with your 
     incredibly busy schedules.
                                           George T. Frampton, Jr.
       Attachment.

                                  ____
                                  

                             Document DOI-G

         United States Department of the Interior, Office of the 
           Secretary,
                               Washington, DC, September 26, 1995.


                               Memorandum

     To: George T. Frampton, Jr., Assistant Secretary, Fish and 
         Wildlife and Parks
     From: Allen McReynolds, Adm, Special Assistant--Land 
         Exchanges
     Subject: Update on Headwaters Forest Project
       The following is a brief update on the activities of the 
     local environmental groups and Congressional delegation to 
     bring attention to the Headwaters Forest Project.

                      A. Congressional Delegation

       1. Letter to Panetta. Five members of the Delegation 
     forwarded a letter (see attached) to Leon Panetta yesterday 
     requesting the Administration's support for a Debt-for-Nature 
     Swap for Pacific Lumber Company's holdings at Headwaters 
     Forest.
       2. Support of Vice President. Jill Ratner, President of The 
     Rose Foundation of San Francisco, met with the Vice President 
     last week in California to request his support for a Debt-
     for-Nature Swap.
       3. F.D.I.C. and O.T.S. As you know, we have engaged in bi-
     weekly telephone conference calls with staff handling the 
     cases at the F.D.I.C. and the Office of Thrift Supervision. 
     FDIC's case was filed in August; OTS has not specified when 
     they would file their claims.
       4. Policy Support. The Delegation continues to call me 
     almost every day to inquire what we have done to move this 
     along within the previous 24 hours. They continue to press 
     Interior to take a more proactive approach with the 
     Administration about a policy call of using Headwaters Forest 
     as a negotiable asset for F.D.I.C. claims against Maxxam.
       5. Federal Assets. We have agreed to review the list of 
     possible Federal assets that can be made available to 
     purchase lands from Pacific Lumber.

                          B. State Legislature

       1. State Legislation. The Headwaters Bill sponsored by 
     Scher was killed in the Senate by Governor Wilson's staff 
     last week. The Governor had requested authorization to 
     exchange up to $70M of timber for Pacific Lumber holdings at 
     Headwaters. Because the Bill did not spell out specific 
     sources and authorization amounts, it has been said that the 
     Governor was embarrassed by the legislation, and, therefore, 
     directed that it be killed.
       2. Letter to Pacific Lumber. As a followup to the Bill's 
     demise, Doug Wheeler wrote a letter to Pacific Lumber's 
     Chairman requesting a meeting to review creative strategies 
     for acquisition between the State and Maxxam/Pacific Lumber. 
     It is our understanding that the State has no assets to make 
     readily available for a proposal such as this. In short, the 
     Governor's staff continue to want to score a victory here but 
     have no specific assets or acquisition strategies.

                     C. Local Environmental Groups

       1. E.P.I.C. Lawsuit. The San Francisco Federal District 
     Court lifted the seal on the lawsuit (see attached) initiated 
     by E.P.I.C. against Charles Hurwitz and Maxxam. The suit 
     calls for claims under the False Claims Act and spells out 
     specific wrong doing in structuring the use of United Savings 
     Association of Texas to purchase Pacific Lumber. There are 
     strong references to Ivan Boesky and Michael Milken and 
     insider trading influences.
       2. Demonstrations. The local environmental groups, 
     including E.P.I.C., and EarthFirst, continue to host weekly 
     demonstrations. They hope that Interior will roll out a 
     specific program soon so that efforts can turn more friendly.
       3. Court Hearing. This Thursday a court hearing is 
     scheduled to review the merits of the harvest plan submitted 
     by Sierra Pacific Lumber on their acreage adjacent to Pacific 
     Lumber's holdings. The recovery plan calls for aerial 
     reconnaissance (helicopters) and other technologically 
     advanced ways of removing the fallen trees from within the 
     murrelet habitat.

[[Page E2505]]

       4. Elk River Timber Company. The Elk River holdings total 
     9,600 acres of land adjacent to Pacific Lumber and Sierra 
     Pacific's holdings. The property owners are Red Emmerson and 
     Jim Lehar, two local investors. E.P.I.C. has requested our 
     support to acquire these acres as they are a critical linkage 
     and habitat sources. Mr. Emmerson has expressed interest by 
     telephone to me in conducting a land exchange with Interior/
     FS, but I need direction to proceed. BLM does not own any 
     land that we want to dispose of in this region of California. 
     Forest Service does have lands which could be appropriate.
       Thank you for your attention. I look forward to the 
     opportunity to visit with you about the options which we have 
     been analyzing for interior's role in this project.

     cc: Jay Ziegler, Tom Tuchmann, Geoff Webb

                                  ____
                                  

                             Document DOI-H

      Executive Office of the President, Council on Environmental 
                                                          Quality,
                                 Washington, DC, October 25, 1995.
     To: Dave Sherman, Forest Service, 205-1604; Allen McReynolds, 
         DOI 208-2681; Larry Mellinger, DOI 208-3877; Bruce Beard, 
         OMB, 395-6899; Jack Smith, FDIC, 898-7394; David Long, 
         DOJ, 514-0280; John Bowman, Treasury, 622-1974
     From: Elisabeth Blaug, Associate General Counsel
     Subj: Headwaters Forest Meeting October 26
       Most of you attended a meeting this past Friday at CEQ 
     Chair Katie McGinty's office, at which we initiated 
     discussions on a potential debt-for-nature swap. As you will 
     recall, the FDIC recently filed a $250 million suit against 
     Charles Hurwitz for his role in the failure of the United 
     Savings Association of Texas (in addition, there is a private 
     False Claims challenge pending). Mr. Hurwitz is a major stock 
     owner in Maxxam, which acquired Pacific Lumber Company, which 
     owns and logs the Headwaters Forest. Because this forest 
     contains approximately 3,000 acres of virgin redwoods, there 
     is great interest to preserve it. Among a number of options 
     to consider for ensuring this happens is a potential debt-
     for-nature swap, by which FDIC would seek to acquire 
     Headwaters from Mr. Hurwitz in exchange for release of its 
     claims.
       At our meeting last Friday, a number of complex legal 
     issues were raised concerning this proposed swap, which 
     relate in some part to your agency. Essentially, we need to 
     examine if and how there might be a chain of ownership from 
     FDIC to Treasury to a land management agency. Hence, there is 
     a follow-up meeting tomorrow (Thursday) at 10:00 a.m. at 
     FDIC, 550 17th Street, room 3036. We will attempt to identify 
     the legal issues that need to be addressed to determine 
     whether a debt-for-nature swap is feasible. I look forward to 
     seeing you or your designate(s) tomorrow. Please contact me 
     at 395-7420 if you have any questions. The FDIC contact is 
     Jack Smith, Deputy General Counsel, at 898-3706.

                                  ____
                                  

                             Document DOI-I

         United States Department of the Interior, Office of the 
           Solicitor,
                                 Washington, DC, December 1, 1995.


                               Memorandum

     To: Bob Baum
     From: Larry Mellinger
     Subject: Headwaters--Alternative Methods for DOI Management
       In addition to the methods in which the Headwaters Forest 
     could possibly be transferred from the Treasury Department to 
     Interior, which were outlined in the FDIC memorandum to 
     Kathleen McGinty, dated November 6, 1995, there are two other 
     practical statutory means by which Interior could administer 
     the Headwaters forest, should either FDIC or Treasury acquire 
     the property as part of a debt-for-nature transaction.

                     The Refuge Administration Act

       The Refuge Administration Act contemplates the inclusion of 
     areas within the National Wildlife Refuge System which are 
     established pursuant to a cooperative agreement with any 
     state of local government, any Federal Department or agency, 
     or any other governmental entity (16 U.S.C. 
     Sec. 668dd(a)(3)(B)). Further, provisions of this subsection 
     allow the specific terms of such a cooperative agreement to 
     direct the course of any future disposition of the property 
     subject to the agreement, notwithstanding other restrictions 
     governing the transfer of lands within the System.
       Presumably such a cooperative agreement for the management 
     of Headwaters could be entered into between DOI and the 
     Treasury Department or FDIC, assuming FDIC at least falls 
     within the definition of a ``governmental entity.'' While 
     management of Headwaters by the FWS, through a cooperative 
     agreement would probably be the most simplified process for 
     attaining DOI management of the area, the FDIC or Treasury 
     would retain underlying jurisdiction over the lands.

                      The Antiquities Act of 1906

       The Antiquities Act of 1906 (16 U.S.C. Sec. 431) provides: 
     ``The President . . . is authorized, in his discretion, to 
     declare by public proclamation historic landmarks, historic 
     and prehistoric structures, and other objects of historic or 
     scientific interest that are situated upon lands owned or 
     controlled by the Government of the United States to be 
     national monuments, and may reserve as a part thereof parcels 
     of land, the limits of which in all cases shall be confined 
     to the smallest area compatible with the proper care and 
     management of the objects to be protected.''
       President Jimmy Carter declared two such National Monuments 
     by Presidential Proclamation on December 1, 1978. The Yukon-
     Charley National Monument encompassed 1,720,000 acres, while 
     the Yukon Flats Monument encompassed 10,600,000 acres. Within 
     such proclamations the President has the discretion to set 
     forth responsibility for management of the National Monument. 
     Thus, presumably, regardless of whether Headwaters was under 
     the jurisdiction of FDIC or the Treasury Department, the 
     President could declare it a National Monument, under the 
     administration of the Secretary of the Interior. Such 
     Presidential proclamations are not subject to the provisions 
     of the Federal Land Policy and Management Act, 43 U.S.C. 
     Sec. 1701, nor are they subject to NEPA, since NEPA does not 
     apply to Presidential action.

                                  ____
                                  

                             Document DOI-J

         United States Department of the Interior, Office of the 
           Secretary,
                                   Washington, DC, March 26, 1996.


                               Memorandum

     To: John Garamendi, Deputy Secretary
     Allen McReynolds, Special Assistant to the Secretary
     Subject: Exchange Issues on Headwaters Project
       You recently stated that you have reason to believe that 
     Charles Hurwitz and Maxxam Corporation officials will most 
     likely want a global settlement through the negotiation 
     process for Headwaters Forest. By that, you were referring to 
     the inclusion of a settlement for both the FDIC and Office of 
     Thrift Supervision (OTS) lawsuits in the negotiations for the 
     land acquired.
       This process raises certain legal and financial questions 
     regarding the ability of the Administration to include 
     settlement of these two lawsuits within the current 
     negotiations. In the past several months, the issues relating 
     to the FDIC lawsuit were analyzed by the headwaters multi-
     agency working group and a formal response was prepared (see 
     attached). The OTS was not willing to participate in open 
     discussions with the working group so none of the issues 
     regarding the OTS lawsuit are known at this time. Restated 
     briefly, the answers are as follows:
       Question 1. Is it feasible for Hurwitz to transfer the 
     Headwaters Forest to the FDIC in exchange for a settlement of 
     the FDIC's lawsuit and/or other assets? Yes. Hurwitz, through 
     his control over Maxxam's and its subsidiaries' boards of 
     directors, has previously influenced the transfer of Pacific 
     Lumber assets to resolve other liabilities. The FDIC's 
     Chairman has stated that in the event the Headwaters Forest 
     is offered to the FDIC as part of a settlement of the FDIC's 
     claims against Hurwitz, the FDIC Board of Directors would 
     consider accepting such assets to resolve the claims against 
     Hurwitz. (Page 3, Issue 1)
       Question 2. Can the F.D.I.C. transfer Headwaters Forest to 
     Interior under existing authorities, without legislation? 
     Yes. The F.D.I.C. could legally transfer title to the 
     Headwaters Forest from the FSLIC Resolution Fund (FRF) to 
     Treasury if the F.D.I.C. determined that the state of the FRF 
     at the time of transfer were such that the value of 
     Headwaters was not better retained in the FRF for discharge 
     of FRF liabilities. A case could be made in favor of such a 
     determination at present, although the FDIC Board of 
     Directors might prefer to foster all FRF assets in view of 
     contingent liabilities. Absent such a determination, an 
     alternative might be for the FDIC to hold the Headwaters 
     Forest for the time being, under management by the Department 
     of the Interior. (Page 8, Issue 2)
       Question 3. What legislative mechanisms exist that may 
     facilitate a transfer of the Headwaters Forest to the U.S. 
     Department of the Interior with minimal financial outlay? 
     Three (3) legislative authorizations provide a mechanism for 
     an inter-agency transfer of title to the Headwaters Forest to 
     the Department of the Interior. The three original citations 
     have since been analyzed and two different authorities have 
     been found to provide better legal authority. The three 
     authorities now considered appropriate are the Transfer of 
     Real Property Act (16 U.S.C. 667b); Federal Property and 
     Administrative Services Act (40 U.S.C. 484); and the Surplus 
     Property Act of 1944 (50 U.S.C. App. 1622g). (Page 12, Issue 
     3)
       Question 4. Can Interior accept Pacific Lumber assets from 
     Treasury/F.D.I.C. without triggering a ``scoring'' claim? Any 
     budgetary impact, including ``scoring,'' is dependent on the 
     particular structure of the transaction and whether 
     particular legislation is necessary to facilitate the 
     acquisition or transfer of the Headwaters Forest. (Page 14, 
     Issue 4)
       Attached for your consideration is the full response 
     drafted by F.D.I.C. and full citations involved in resolving 
     the legal, legislative, and financial obstacles involved.
       Enclosure.

                                  ____
                                  

                             Document DOI-K


                               Law Offices of Thomas N. Lippe,

                                  San Francisco, CA, June 5, 1996.
     To: Robert Baum, Department of Interior

[[Page E2506]]

     Your Fax No: 202-208-3877
     From: Thomas N. Lippe


                          CONFIDENTIALITY NOTE

       The documents accompanying this cover sheet contain 
     information from the law offices of Thomas N. Lippe which may 
     be confidential or privileged. The information is intended to 
     be for the use of the individual or entity named on this 
     transmission sheet. If you are not the intended recipient. Be 
     aware that any disclosure, copying, distribution or use of 
     the contents of this faxed information may be prohibited. If 
     you have received this facsimile in error. Please notify us 
     by telephone immediately so we can arrange for the return of 
     the original documents to us.
       Other: Fax does not include map; Original with enclosed map 
     to follow in the mail.
       Date: June 5, 1996.
       Case: HD-ACQ.

                                  ____
                                  

                               Law Offices of Thomas N. Lippe,

                                  San Francisco, CA, June 5, 1996.
     By Facsimile and By mail: (202) 208-3877
     Robert L. Baum,
     Associate Solicitor for Division of Conservation & Wildlife, 
         Solicitor's Office, Department of Interior, Washington, 
         DC.
       Dear Bob: I am writing on behalf of the Headwaters Forest 
     Coordinating Committee to follow up on your meeting with 
     Julia Levin on May 31, 1996. I understand from Julia that you 
     expressed a high degree of disappointment and frustration 
     with your meeting with the HFCC representatives, including 
     myself, in Burlingame on May 15, 1996. We are puzzled by this 
     since your characterization of our discussions at that 
     meeting does not reflect many of the most important elements 
     of our communications. Therefore, in order to avoid any 
     ambiguity or misunderstanding, we are writing now to 
     memoralize the most important elements of what we said at the 
     meeting.
       The Headwaters Forest Coordinating Committee (HFCC) is 
     composed of representatives of the following organizations: 
     Bay Area Coalition for Headwaters Forest (BACH), Earth 
     First!, Environmental Protection Information Center (EPIC), 
     Forests Forever, Mendocino Environmental Center (MEC), Rose 
     Foundation for Communications and the Environment, Sierra 
     Club, Trees Foundation.
       The HFCC has in turn selected the five individuals you met 
     with (i.e., Cecelia Lanman, Kathy Bailey, Jill Ratner, Doug 
     Thron and myself) to represent the HFCC in discussions with 
     the Administration and in any negotiations with Pacific 
     Lumber Company.
       These organizations have been working for many years, 
     through litigation, community education, government and 
     private acquisition, etc., to protect the ecology and 
     biodiversity of the redwood region of California. As a 
     result, the organizations are recognized by the national 
     environmental community as the most knowledgeable about what 
     is required to achieve meaningful protection for this 
     dwindling resource.
       All of these organizations and their members very much 
     appreciate the Administration's interest in exploring the 
     possibility of federal acquisition of privately owned redwood 
     forests for conservation purposes. Both you and John 
     Garamendi have, quite understandably, inquired of the HFCC 
     organizations how they would view certain acquisition 
     scenarios. The HFCC's response to this query at our May 15, 
     1996 meeting, which has apparently caused your current 
     frustration, is as follows:
       1. The federal government should explore acquiring the 
     approximately 57,000 acres of private redwood forest land 
     that is roughly equivalent to the area identified in HR 2866 
     (103rd Congress). This area is composed of: (a) approximately 
     44,000 acres of land, most of which has been designated as 
     critical habitat for the marbled murrelet by the U.S. Fish & 
     Wildlife Service and which belongs primarily to Pacific 
     Lumber Company (approximately 33,000 acres) and other 
     companies (approximately 11,000 acres including approximately 
     6,300 acres of Elk River Timber Company land); and (b) a 
     13,000 acre area north of the critical habitat area, which is 
     identified in HR 2866 as a Coho Salmon Study Area. The HFCC 
     is mapping the precise boundaries of these areas.
       2. Federal acquisition should not be accompanied by any 
     ``sufficiency language'' relating to any timber owner's 
     compliance with environmental laws or restricting judicial 
     review of logging elsewhere.
       3. The federal government should seek interim protection 
     for these areas by (a) informing Elk River Timber Company 
     that it is considering acquiring Elk River's land north of 
     the Headwaters Grove; and (b) insisting that Pacific Lumber 
     Company cease logging in the old growth groves within the 
     Palco owned areas described above.
       4. The federal government should contact and share with the 
     HFCC appraisals of the following areas:
       (a) The areas described in (a) and (b) of paragraph 1 
     above,
       (b) The 33,000 acre area described in Palco's federal 
     inverse condemnation complaint,
       (c) All of the old-growth groves that are depicted on the 
     enclosed map as being within the critical habitat area.
       5. Federal land acquisition should be accompanied by forest 
     worker retraining measures.
       6. Federal acquisition should not be accomplished by 
     trading other old growth forest lands.
       7. The HFCC will assist with identifying surplus federal 
     property that may be suitable for a land swap; but the 
     Department of Interior should share its information on these 
     properties with the HFCC to enable us to assist.
       8. The HFCC has established a process to attempt to reach 
     consensus on how to respond to any eventual land acquisition. 
     We believe that it is now premature to attempt to define what 
     is feasible or realistic and that such determinations must 
     depend on the information gained from the appraisals and 
     surplus property surveys described above. In addition, the 
     federal government's reluctance to discuss, either with us or 
     with Maxxam, the possible settlement of the FDIC and OTS 
     lawsuits (the so-called ``debt for nature'' swap) also makes 
     any meaningful assessment of what is feasible impossible at 
     this time.
       We believe that if the federal government pursues 
     acquisition with the intent of maximizing ecological 
     conservation, limited by actual financial and political 
     constraints, and with open communication and sharing of 
     information with the HFCC (within legal constraints), that 
     the end result of this process will be understood and 
     supported by the environmental community in California and 
     nationwide.
       Given these considerations, it is unrealistic for the 
     Administration to expect support, now, for a proposal which 
     may fall far short of what could be accomplished after all 
     the facts are in. In addition, the existing murrelet listing 
     and recent designation of murrelet critical habitat, as well 
     as the forthcoming coho listing by your Department highlight 
     the need to take affirmative steps now to protect these 
     species, which HFCC's approach to designed to accomplish.
       In conclusion, we hope the Administration will work with us 
     to acquire a significant portion of the old growth redwood 
     ecosystem in California, an accomplishment that would be 
     historic in scope. Toward this end, Julia will contact John 
     Garamendi's office to arrange a meeting with us soon as 
     possible.
       Thank you for your careful consideration of this.
           Very truly yours,
                                                  Thomas N. Lippe.
       Enclosure.

     cc: Cecelia Lanman, Doug Thron, Jill Ratner, Kathy Bailey, 
         Julie Levin

                                  ____
                                  

                             Document DOI-L

         United States Department of the Interior, Office of the 
           Deputy Secretary,
                                     Washington, DC, July 8, 1996.


                               MEMORANDUM

     To: Jim Brookshire, Bob Baum
     From: John Garamendi
     Subject: Weekend Discussions with Hurwitz and Boggs
       Friday night I attended Boggs' barbecue at his home, and 
     talked to him and to Maxxam's Corporation Vice President from 
     Washington. I laid out our four demands. They were not 
     responsive, and it was obvious that they had no instructions 
     to negotiate. From the discussion, it was clear that Charles 
     Hurwitz had two concerns. The first was that we are not 
     serious and that we are just stringing him out. The second is 
     that our appraisal will be so far off the mark that no deal 
     can be made, and that the properties that we are putting 
     forth are not good. These concerns seemed to be the reasons 
     that they did not want to do the four demands.
       I finally told them that if they did not believe that we 
     were serious, then Charles Hurwitz should phone me on 
     Saturday. By the time we returned home, Mr. Hurwitz had 
     phoned. We talked later Saturday afternoon. Mr. Hurwitz 
     confirmed my suspicions as related above. He went on and on 
     about the properties not having real value because 
     entitlements were not assured. He dismissed Yerba Buena and 
     Treasure Island as worthless. The same was said about all 
     other properties that he had heard about. He demanded to have 
     the appraisal and the list before deciding what to do about 
     the demands.
       I said, ``no, we would not negotiate and litigate at the 
     same time.'' He needed to decide which he would do . . . the 
     four demands would have to be met, I said. I suggested that 
     the following steps occur:
       1. Charles Hurwitz meets our demands;
       2. On receipt of the confirming letters, we will give him a 
     complete list of properties;
       3. We will enter into discussions with him on the value of 
     Headwaters with the goal of agreeing to a value; and,
       4. We will then determine how to pay the price with land 
     swaps, etc.
       He said he'd get back to us on Monday.
       Later Saturday evening he called again and asked to have 
     all of the State of California properties at Lake Tahoe put 
     on the table. I said I'd think about it.
       Sunday, Mr. Boggs phoned and asked me to think about the 
     wording of a letter he would send me on Monday. Here it is: 
     they would meet the four demands with modifications. I think 
     the letter will come in like this.
       A stay of the takings case until September 15, with 
     extensions if mutually agreeable;
       An agreement not to log until ``x'' date;
       Three-party agreement on confidentiality; and,
       No double dealing.
       You are to review the letter and determine if it meets our 
     minimum requirements. If not, then call Mr. Boggs and suggest 
     improvements. Call me in Alaska to review the letter if it 
     meets minimum requirements.
       Do not proceed on showing or discussing any property deals 
     Mr. Hurwitz or his people.

[[Page E2507]]

       Do order an appraisal of the Emerson property. I want that 
     piece in place as soon as possible.
       Good luck to us all.

                                  ____
                                  

                             Document DOI-M

          Questions regarding Headwaters Grove, July 19, 1996

       1. Please provide an area map showing the property's 
     location. Describe the Headwaters Grove property and its 
     physical surroundings. What other areas surround it that 
     involve Pacific Lumber?
       2. What is the significance of the marbled murrelet and 
     other threatened/endangered species for the property? What 
     ESA or other potential development limitations from Federal 
     or State law affect the Grove and surrounding area? What 
     current limitations affect the property?
       3. Explain the takings lawsuit that Maxxam has filed. What 
     are the grounds for the lawsuit? What is the status of the 
     suit? Is the claim credible?
       4. Provide a history/chronology of the negotiations to 
     exchange the Grove from Maxxam and its predecessors. When and 
     how did Maxxam become involved? What volume of timber (green 
     or salvage) has been cut from the Grove and surrounding area 
     owned by Pacific Lumber thus far?
       5. What are all the elements of the DOI proposed exchange? 
     Does the exchange involve the FDIC? IRS? Forest Service? 
     Other agencies? Are tax incentives or FDIC/OTS claims 
     involved?
       6. Have formal appraisals on the property involved in the 
     exchange been done? What is the basis for the Maxxam 
     estimates? DOI's?
       7. Does DOI contemplate needing legislation for this deal 
     to occur, or do necessary authorities exist? If so, list 
     these authorities and how they apply.
       8. What is the timetable for a transaction? What is the 
     significance of September 15th? What legal options are 
     involved for the Federal Government in terms of protecting 
     the property (specifically with regards to the ESA)? Does 
     Maxxam believe it has leverage in this transaction and if so, 
     what are the circumstances that leads it to believe that?
       9. What have been the public positions on a Headwaters 
     exchange by Maxxam, DOI, State of California, and other 
     national and local groups?
       10. Have the FDIC/DOJ/IRS been involved in DOI's 
     discussions with Maxxam? Have these agencies been involved in 
     separate discussions with Maxxam?

                                  ____
                                  

                             Document DOI-N


                                       Sierra Club California,

                                       Philo, CA, August 21, 1996.
     Re: Headwaters Forest
     Assistant Secretary John Garamendi,
     U.S. Department of the Interior,
     Washington, DC
       Dear Assistant Secretary Garamendi: I am writing you on 
     behalf of the Headwaters Forest Coordinating Committee. We 
     thank you for your willingness to continue the negotiations 
     which will lead to protection for Headwaters Forset. We 
     appreciate that the issue is complex and the potential price 
     tag is large.
       To assist you in defining areas which we believe to be 
     priorities for protection, the Headwaters Forest Coordinating 
     Committee met last week. We all agree that acquisition or 
     permanent protection at this time for the following areas 
     would constitute a significant step toward protection for 
     Headwaters Forest, the sixty thousand acre area which is our 
     primary concern. By listing these priorities we do not intend 
     to imply that these steps would constitute full and complete 
     protection for the Headwaters ecosystem. Rather we are 
     attempting to make suggestions for a feasible starting point. 
     Our priorities for protection are:
       All the virgin old-growth groves within the USFWS-
     designated murrelet critical habitat area and their adjacent 
     residual old-growth groves.
       Within the critical habitat area, the residual old-growth 
     groves which are ``occupied.''
       A buffer on the north of the main grove consisting of the 
     3700 acres designated as murrelet critical habitat within the 
     Elk River Timber property.
       A minimum 300 foot buffer around every occupied grove.
       Watercourse protection within the 60,000 acre Headwaters 
     Forest and the remainder of the Elk River Timber Company 
     (approximately 5400 acres) similar to the Standards and 
     Guidelines for Management of Habitant for Late-Successional 
     and Old-Growth Forest Related Species Within the Range of the 
     Northern Spotted Owl, published jointly by Interior and other 
     departments in April 1994.
       No limitation on the application of the Endangered Species 
     Act or other modification of current law applicable to the 
     Headwaters area.
       We are in the process of producing another map which 
     outlines these areas. Until it is complete we hope the 
     following information will be useful.


              Acreage of Occupied Murrelet Nesting Groves

       All the virgin old-growth groves within the USFWS-
     designated murrelet critical habitat area, adjacent residual 
     old-growth groves, and other residual old-growth groves which 
     are ``occupied'' by marble murrelets:
       Although we would like to clearly identify these habitat 
     categories, the acreage figures which Pacific Lumber has 
     provided in its draft murrelet HCP appear to be 
     unrealistically low when compared with the timber type map 
     which it has provided EPIC as part of the exemption 
     litigation. According to the HCP, the company claims:

     4768: Virgin occupied nesting within critical habitat area 
         (includes main grove)
     1346: Residual occupied nesting within critical habitat area

      6114 acres: Total occupied nesting habitat within critical 
         habitat area.
       The PL draft HCP also claims that there are 1550 acres of 
     occupied nesting habitat outside the designated critical 
     habitat area.
       During discovery associated with EPIC's federal exemption 
     litigation, Pacific Lumber has provided a map which shows 
     timber types and stand densities on its property. This map 
     shows that there are significant areas of residual timber 
     adjacent to the virgin nesting groves. Murrelet surveys in 
     this acreage have not been systematic, although murrelet 
     occupied behavior has been observed in residual stands.
       Using PL's timber type map, we estimate that there could be 
     as much as 17,113 acres occupied by murrelets in the 60,000 
     Headwaters Forest, including the stands where surveys have 
     demonstrated occupancy north of the designated critical 
     habitat area. However, this figure does not include the 1550 
     acres mentioned above that PL has identified as occupied, 
     which is located south of Headwaters, outside the critical 
     habitat area. Of the 17,113 figure, approximately 14,000 
     acres fall within the critical habitat boundary. It is 
     crucial to keep in mind that only about 5000 acres of either 
     figure is virgin.
       (An additional uncertainty which we are attempting to 
     clarify is whether some of the residual groves identified on 
     the timber type map have already been logged. Although their 
     map is dated March 1996 we believe updating the map may 
     result in modification of the information it portrays.)


Timber Volume per acre is Higher in Main Grove than in the Other Virgin 
                                 Groves

       The question of valuation immediately comes to mind. 
     Therefore, we asked Dr. Robert Hrubes, an independent 
     consulting forester, to analyze the Pacific Lumber maps to 
     determine whether there was any quantifiable difference 
     between the timber stand characteristics in the main grove 
     compared to the other virgin groves. He concluded that there 
     was a very significant difference. According to Hrubes, the 
     PL maps indicate that the size of the trees is larger and the 
     density of the canopy is heavier in the main grove than in 
     the other groves, indicating a likely greater timber volume 
     and value. You will receive his report by August 23.


 Timber Volume and Value in Residual Stands is 10-15% of Virgin Groves

       Pacific Lumber itself has used and published at least two 
     rules of thumb to estimate the relative timber volume of 
     residual stands compared to virgin groves. In its recent suit 
     Pacific Lumber v. United States, on page 16, paragraph 31, 
     line 10-12 the company states: ``About 10 acres of residual 
     old growth is required to produce the volume that would be 
     produced from one acre of virgin old growth.''
       Another estimate of relative value was provided in Timber 
     Harvest Plan 89-793 Hum, the last THP submitted (never 
     approved) which proposed full scale logging within the main 
     grove. This THP proposed logging 77% of the stand volume in 
     399 acres of the grove to produce 49.5 million feet of logs. 
     In its analysis of alternatives, Robert Stevens, PL's Head 
     Forester at the time, states on page 60: ``If TPL Co. is 
     prevented from logging its virgin timber, it will have no 
     choice except to replace this old growth timber volume with 
     trees from previously logged stands. Producing 49.5 million 
     feet of logs would require 2,500 acres or more to be 
     logged.'' The 399 acres of virgin timber from the main grove 
     proposed for logging by THP 793 is 15% of the 2500 acres 
     minimum which Stevens estimates would provide alternative old 
     growth timber for harvest. Thus the company has provided over 
     a seven year period two similar estimates of relative value: 
     The company believes its residual timber stands contain 
     between 10 and 15% of the volume of a virgin stand.


              Watercourse Protection for Fish and Wildlife

       One of our top priorities is watercourse protection within 
     the 60,000 acre Headwaters Forest and the residual portion of 
     the Elk River Timber Company similar to the Standards and 
     Guidelines for Management of Habitat for Late-Successional 
     and Old-Growth Forest Related Species Within the Range of the 
     Northern Spotted Owl, published jointly by Interior and other 
     departments in April 1994. When reviewing the Standards and 
     Guidelines it is important to keep in mind that they were 
     designed to provide important habitat for a broad variety of 
     species not limited to fish.
       Standards and Guidelines specifies a no cut zone on each 
     side of a fish-bearing (Class I) watercourse measured along 
     the ground (slope distance) equal to two site potential trees 
     or 300 feet, whichever is greater. Without reviewing company 
     information, site potential tree size can only be estimated. 
     I have estimated 250 feet per tree, which would yield 500 
     feet each side. However it is also difficult to estimate 
     ground-slope distance from a map so I have used the 300 foot 
     standard (total 600 feet on both sides of watercourse) 
     applied to the (horizontal) map distance. Greater precision 
     will obviously be needed before finalizing any agreement.

[[Page E2508]]

       Measuring by hand the watercourses within the 60,000 acre 
     Headwaters Forest as indicated on U.S.G.S. topographical maps 
     has yielded the estimate that there are 334,950 linear feet 
     of Class I, blue-line watercourses. This is the equivalent of 
     63.44 miles. I applied the 600 foot standard to this figure, 
     divided by the number of square feet in an acre (43,560), and 
     determined that proposed Class I no-cut watercourse zones 
     would total approximately 4612 acres: 600'  x  334,950' = 
     200,970,000 sq.ft/43,560 = 4612 acres.
       Although I originally believed that the distance of Class 
     II (presence of water-dependent non-fish life) streams could 
     equal as much as four times the distance of Class I streams 
     (which I reported separately regarding Elk River Timber 
     Company), additional time spent mapping has led me to 
     conclude that twice the distance is a closer estimate, and 
     still likely to be high.
       The Standards and Guidelines for Class II is one site-
     potential tree or 150 feet no cut zone each side of the 
     watercourse. Using the same logic as outlined above, I have 
     used the 50 foot standard. Applying 50% of the Class I zone 
     to twice the distance yields the same number. Therefore I 
     believe protection for Class II streams would likely be no 
     more than an additional 4612 acres.
       Without close inspection it is impossible to feel confident 
     about estimating the distance of Class III (ephemeral) 
     streams. However, I still believe that as a working 
     assumption we can guesstimate that there are twice as many 
     Class III (ephemeral) streams as Class II. The Standards and 
     Guidelines for Class III are one site potential tree or 100 
     foot no-cut zone each side of watercourse. However, we have 
     chosen to depart from the Standards and Guidelines in this 
     instance and simply ask for a 50 foot equipment exclusion 
     zone on each side of all Class IIIs with retention of at 
     least 50% overstory and understory canopy within that zone. 
     Over the estimated 254 miles of Class III, an equipment 
     exclusion zone totaling 3076 acres should be applied.

     Class I=4612 ac
     Class II=4612 ac
     Total=9224 ac no harvest watercourse protection zones
     Class III=3076 ac equipment exclusion with 50% canopy 
         retention


         Pre-existing Watercourse Constraints Must be Analyzed

       Existing California Board of Forestry regulations require 
     50% of the stream canopy to be retained for Class I streams 
     and a Watercourse and Lake Protection Zone (WLPZ) ranging 
     from 75-150 feet depending on side-hill slope. Class II zones 
     are smaller. Equipment exclusion zones for Class III streams 
     with or without canopy standards are often specified in 
     current THPs. Protection measures are likely to increase when 
     coho salmon are listed this year.
       THP 96-059 Hum on the neighboring Elk River Timber property 
     included mitigation measures beyond standard rule 
     prescriptions including: retention of approximately 75% of 
     the existing conifer overstory in the Class I WLPZ and a 150 
     foot WLPZ. The value of purchasing a riparian corridor should 
     take existing regulatory constraints and operational 
     practices into consideration.
       Additionally, it will be necessary to conduct an evaluation 
     of the existing harvestable timber volume in the proposed 
     watercourse protection zones. A significant proportion of the 
     proposed no-cut zones will have very little immediately 
     merchantible timber remaining.


                               Conclusion

       We continue to believe that protection for the full 60,000 
     acre Headwaters Forest should be achieved as soon as 
     possible. We hope that our effort to prioritize the need to 
     protect specific habitat features within Headwaters Forest 
     will be helpful in you negotiations with Pacific Lumber 
     Company. We remain willing to provide information to support 
     your efforts.
           Sincerely,
                                                     Kathy Bailey,
                      State Forestry Chair, on behalf of the HFCC.

                                  ____
                                  

                             Document DOI-O


                              foia request

       1. GSA July memo to Hurwitz/notebook.
       2. Forest Service maps, memo to Dep. Secy.
       3. Base Closure.
       4. BLM Lands Humboldt, Trinity, Mendocis.
       5. GSA printout.
       6. Oil & gas.
       Look for memos, etc. in file re: surplus property.

                                  ____
                                  

                               Appendix 4

                                         House of Representatives,


                                       Committee on Resources,

                                                   Washington, DC.


                      MEMORANDUM AND STAFF REPORT

     To: Chairman John Doolittle, Members of the Headwaters Task 
         Force
     From: Committee on Resources Staff
     Date: January 5, 2000
     Re: Documents regarding

       Pursuant to the motion of Chairman Doolittle at the 
     December 12, 2000, hearing, the attached documents are 
     included in the record of the hearing. The motion was as 
     follows: ``I move that all the documents we utilized in 
     today's hearing be included in the hearing record and that 
     all of the documents produced by the Department of the 
     Interior be included as part of today's hearing record; and I 
     furthermore move that any documents not included in the above 
     categories that are necessary to document a staff report or 
     analysis of the situation be released with such a staff 
     report.''
       There was no objection to the motion. The attached 
     documents (A-X) and certain DOI labeled and unlabeled 
     documents, along with all documents produced by the 
     Department of the Interior, are therefore part of the 
     official record of the Committee on Resources, Task Force on 
     Headwaters Forest and Related Issues. Committee records are 
     available for public dissemination. Consequently, they, along 
     with the Stenographic Minutes of the hearing (and the 
     official printed transcript when available) were part of the 
     official Task Force hearing record and were publically 
     available at the close of the hearing.
       The staff reaches the following conclusions regarding the 
     information gathered by the Task Force:
       (1) The record and information produced at the hearing (and 
     the attached documents) support the conclusion that the debt-
     for-nature agenda was a large, if not integral part of the 
     rationale for proceeding with the FDIC professional liability 
     action against Charles Hurwitz for the USAT failure.
       (2) The debt-for-nature agenda was first advanced through 
     the outside counsel of the FDIC (Hopkins & Sutter) which 
     coordinated numerous meetings and other communications for 
     environmental interest groups and foundations about obtaining 
     redwoods owned by one of Charles Hurwitz's companies through 
     ``leverage'' that would be exercised via a ``high profile'' 
     lawsuit.
       (3) The debt-for-nature agenda to obtain redwoods had 
     nothing to do with legitimate banking rationales for bringing 
     the FDIC legal action regarding USAT.
       (4) The FDIC debt-for-nature agenda was advanced by the 
     Office of Thrift Supervision action (filed approximately 4 
     months after the FDIC action) when the FDIC paid the OTS to 
     pursue its administrative action in a forum more favorable to 
     the banking regulators.
       (5) The FDIC and the OTS repeatedly insisted in writing 
     that Charles Hurwitz was the first to raise the issue of a 
     ``global settlement'' involving debt-for-nature and redwoods 
     with them. This notion is contrary to the bulk of evidence 
     presented at the hearing. The record shows that months prior 
     to Mr. Hurwitz broaching the redwoods as part of a settlement 
     involving the banking claims, the FDIC secretly plotted to 
     ensure that Mr. Hurwitz was baited into ``first'' raising the 
     issue with the banking regulators.
       (6) The records also show a much broader government-wide 
     effort involving the CEQ, the OMB, the DOI, and the banking 
     regulators to create ``leverage'' through filing banking 
     claims and to use ``leverage'' of the banking claims to 
     obtain redwoods, precisely as outlined by early 1993 
     communications from the eco-terrorist group Earth First! and 
     other ``environmental'' interest groups.
       (7) The records show three days prior to the July 27, 1995, 
     ATS memo, the staff would have used ``ordinary'' procedures 
     to close out the case against Mr. Hurwitz regarding USAT, but 
     pressure from Members of Congress and environmental special 
     interest groups were cause enough to bring the matter of 
     pursuing Mr. Hurwitz for USAT claims before the FDIC board of 
     directors. That memo was finalized in draft, but never signed 
     or sent.
       (8) The FDIC board of directors discussed the topic of the 
     redwoods and meetings between FDIC staff and Department of 
     Interior staff about the debt-for-nature scheme at their 
     board meeting when determining whether to bring the action 
     against Mr. Hurwitz. Those subjects were consequently a 
     factor in the board's determination to proceed with the 
     action involving USAT against Mr. Hurwitz.
       The staff makes the observation records examined by the 
     task force document the conclusions above. The staff makes 
     the additional observation that more material documenting 
     these conclusions, including the wider government agenda to 
     obtain the redwoods owned by Mr. Hurwitz using banking claims 
     by the FDIC and OTS as leverage, is available in the 
     committee records.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                 Washington, DC, December 8, 2000.
     Mr. William F. Kroener, III
     General Counsel, Federal Deposit Insurance Corporation, 
         Washington, DC
       Dear Mr. Kroener: Thank you for your December 7, 2002, 
     letter about the December 12, 2000, hearing of the Task Force 
     on the Headwaters Forest and Related Issues. You raise 
     misplaced concerns about the hearing and possible use of 
     records by the Task Force in furtherance of very legitimate 
     oversight activities authorized under the U.S. Constitution 
     and the Rules of the United States House of Representatives.
       Please refer to page two of the June 16, 2000, letter from 
     Chairman Young to Chairman Tanoue, which outlines a parameter 
     of the oversight project: the FDIC's ``advancement of claims 
     against private parties to ultimately obtain additional 
     parcels of the Headwaters Forest owned by the Pacific Lumber 
     Company.'' This issue is not at all (or should not be) part 
     of the underlying banking claim of the FDIC (or the OTS). In 
     fact, the issue of redwoods, debt-for-nature, and the 
     Headwaters Forest should have no

[[Page E2509]]

     place in FDIC, or OTS investigations, proceedings, claims, 
     court filings, or even internal communication--yet production 
     of such material from your agency was massive.
       The banking laws certainly do not authorize agendas 
     associated with redwoods, debt-for-nature, or expansion of 
     the Headwaters Forest. In fact, other Acts of Congress 
     prohibit any expenditure whatsoever related to acquiring 
     lands or interests in lands from Pacific Lumber's land base 
     to enlarge the Headwaters Forest redwood grove. The letter 
     also explains the authority to conduct this oversight 
     project, and it explains the background of this issue so that 
     it is very clear to everyone. Indeed, it is a duty of 
     Congressional committees to ``review and study on a 
     continuing basis the application, administration, and 
     effectiveness of laws * * *'' and ``any conditions or 
     circumstances that may indicate the necessity or desirability 
     of enacting new or additional legislation.* * *'' (House Rule 
     X 2.(b))
       This is precisely what the Task Force will do. The June 16, 
     2000, letter to Chairman Tanoue from Chairman Young makes 
     this clear and cites the applicable provisions of law and 
     rules that define our oversight. Your agency was informed six 
     months ago about the thrust of the oversight project.
       Merely because ongoing litigation ``relates'' to a matter 
     under review by a Task Force is not legal justification that 
     forecloses Congress' ability to determine and test facts by 
     using records in a Congressional review or hearing. It will 
     certainly be no excuse for failing to answer questions at our 
     hearing. Often Congressional Committees hear that notion when 
     records are embarrassing to a Federal agency for one reason 
     or another, rather than when records are subject to a valid 
     claim of privilege in a court.
       If litigation or potential litigation were a bar to 
     Congressional oversight, Congress would rarely be able to 
     conduct any oversight. You must also be aware that because 
     records are compelled to be produced to a Committee, means 
     that an otherwise legitimate privilege that shields them from 
     discovery in a court of law is not automatically lost. Your 
     concern, therefore, about possible disclosure of 
     ``sensitive'' or ``confidential'' records related to ongoing 
     litigation is overstated, especially in light of the 
     tangential nature of the primary subject of our oversight to 
     the underlying banking claims brought by the FDIC (and OTS). 
     The Constitutionally authorized oversight functions of 
     Congress to collect information for oversight make your 
     concern even less valid.
       Furthermore, with respect to the ATS memorandum to which 
     you refer, it has been publically available for months on the 
     Houston Chronicle web site (http://www.chron.com/content/
 chronicle/special/hurwitzdocs/), so it is a stretch to think 
     that your Chairman would be held in contempt of court for 
     being compelled to discuss the contents of such a document at 
     a Congressional hearing. This is particularly true given the 
     fact that the record was independently subpoenaed and 
     produced to the Committee outside of the court proceedings, 
     and your Chairman is compelled by subpoena to testify at the 
     hearing. While answers to specific questions may prove to be 
     very embarrassing to the FDIC and OTS, Chairman Tanoue will 
     be expected to answer questions concerning that record and 
     other records should such questions be asked.
       I hope that this clears up the concerns that you raised. 
     Thank you for your attention to this matter.
           Sincerely,
                                                John T. Doolittle.

                                  ____
                                  

                                         Federal Deposit Insurance


                                                  Corporation,

                                 Washington, DC, December 7, 2000.
     Hon. John T. Doolittle, 
     Chairman, Task Force on Headwaters Forest and Related Issues, 
         Committee on Resources, House of Representatives, 
         Washington, DC.
       Dear Mr. Chairman: This letter responds to your recent 
     letters and subpoena to Chairman Tanoue for her appearance 
     and testimony before a meeting of the Task Force, previously 
     scheduled for November 13, 2000, which is now scheduled for 
     December 12, 2000. According to your letter of November 8, 
     2000, the hearing will relate to the FDIC's pending 
     litigation against Charles E. Hurwitz arising out of the 1988 
     failure of United Savings Association of Texas (USAT).
       The FDIC has produced a large number of documents to the 
     House Committee on Resources in response to its previous 
     request and the subpoena duces tecum issued on June 30, 2000. 
     As we previously informed Chairman Young, our prior 
     productions include sensitive, highly confidential material 
     that is covered by attorney client and/or attorney work 
     product privileges in the ongoing litigation against Mr. 
     Hurwitz, including documents that Mr. Hurwitz and his 
     representatives are not entitled to review through the court 
     proceedings. We have identified the documents containing 
     confidential information with a stamp bearing the designation 
     ``CONFIDENTIAL.''
       Among the documents provided to the Committee is the FDIC's 
     Authority To Sue memorandum, which remains under a court 
     seal, pursuant to two orders of the United States Court of 
     Appeals for the Fifth Circuit. Because of these two court 
     orders, the FDIC, as a party to the litigation, could be 
     subject to contempt of court by discussing the specific 
     contents of the authority to sue memo publicly. Therefore, 
     the FDIC will not be able to answer specific questions about 
     the conclusions and recommendations contained in the sealed 
     document itself. However, we believe we can assist the Task 
     Force to fulfill its oversight responsibilities and respond 
     to any questions about the decision to bring the case without 
     referring to the sealed document by discussing the unredacted 
     portions of the Board's deliberations, the underlying facts, 
     the case law and the agency's standards for bringing suit.
       Please do not hesitate to contact me if you have any 
     further questions.
           Sincerely,
                                          William F. Kroener, III,
                                                  General Counsel.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                 Washington, DC, December 7, 2000.
     Carolyn J. Buck,
     Chief Counsel, Office of Thrift Supervision, Department of 
         the Treasury, Washington, DC.
       Dear Ms. Buck: Thank you for your December 6, 2000, letter 
     requesting that you be substituted as a witness for Director 
     Seidman at the hearing regarding debt-for-nature and the 
     Headwaters Forest scheduled for December 12, 2000.
       I understand Ms. Seidman's role in the administrative 
     proceeding (In the Matter of United Savings Association of 
     Texas et al., OTS Order No. AP 95-40 (December 26, 1995)). I 
     understand the sensitivity you expressed related to the 
     Director's participation in our hearing; however, Ms. Seidman 
     has other responsibilities as the Director of the OTS. She is 
     responsible for the matters including conduct of employees in 
     the OTS, the office's interface with the FDIC on the 
     Headwaters matter (the FDIC has paid the OTS to pursue the 
     claims), and the general policies concerning pursuance of 
     claims like those against USAT.
       Indeed, a primary thrust of the inquiry (which examines 
     debt-for-nature and Headwaters) should have nothing to do 
     with the legitimate pursuit of the administrative proceeding 
     against USAT. Therefore, it is inconceivable that the inquiry 
     could adversely influence ``due process and fairness'' for 
     the respondent (USAT or any of its prior owners), the concern 
     you expressed.
       It was explained by Chairman Young in the letter to the 
     Director initiating the oversight review that Congress acting 
     through the Committee on Resources (and now through a duly 
     authorized Task Force), has the authority to conduct the 
     inquiry. The House Ethics Manual to which you refer 
     acknowledges the plenary authority of Congress and its 
     Committees to conduct this oversight review concerning the 
     Headwaters. The ethics manual states: ``No other statute or 
     rule restrains Members of Congress from communicating with 
     agency decision-makers.'' The ultimate form of communication 
     in a formal sense will be at the hearing that we have 
     scheduled.
       Therefore, Director Seidman's attendance is required at the 
     hearing. You and appropriate staff should be available to 
     assist her with answers to Task Force Questions that she may 
     not have the detailed knowledge and background to answer. 
     While the Director may not have been involved with the filing 
     of the OTS charges because she came to the agency 
     subsequently , she still has ultimate responsibility for OTS 
     actions, so I expect your staff to be available to assist 
     here in providing needed information to the Task Force. Thank 
     you.
           Sincerely,
                                                John T. Doolittle,
                                                         Chairman.

                                  ____
                                  

                                     Office of Thrift Supervision,


                                   Department of the Treasury,

                                 Washington, DC, December 6, 2000.
     Hon. John T. Doolittle,
     Chairman, Task Force on Headwaters Forest and Related Issues, 
         Committee on Resources, House of Representatives, 
         Washington, DC.
       Dear Chairman Doolittle: This responds to your December 5, 
     2000, letter to Director Ellen Seidman, which references your 
     November 6, 2000, letter and the November 4, 2000, subpoena 
     for her appearance and testimony before a meeting of the Task 
     Force, acting on behalf of the Committee on Resources.
       As I stated in my June 23, 2000, and August 24, 2000, 
     letters to Chairman Young of the Committee on Resources 
     (copies enclosed), the Office of Thrift Supervision (OTS) has 
     substantial concerns that the Task Force's inquiry could 
     compromise the pending adjudicatory proceeding brought by the 
     agency, pursuant to 12 U.S.C. Sec. 1818, against Mr. Charles 
     Hurwitz and Maxxam Corporation concerning their involvement 
     with the former United Savings Association of Texas (USAT). 
     This proceeding is now in the post-trial stage before an 
     administrative law judge (ALJ), who will submit a recommended 
     decision to Director Seidman. After a further opportunity for 
     the parties to submit briefs, Director Seidman will issue the 
     final decision in the case.
       The subpoena to Director Seidman, which calls for her to 
     testify concerning such matters as the reasons why the OTS 
     brought the administrative action, and OTS's objectives in 
     the litigation, has the real potential of interfering with 
     her ability to decide the case on the basis of the record 
     presented at trial to the ALJ. In so doing, the actions of 
     the Committee and the Task Force may be

[[Page E2510]]

     later viewed as having deprived the parties to the 
     administrative proceeding of due process and fairness and 
     could result in the final administrative determination in 
     this proceeding being nullified by a court of law. See, e.g., 
     Pillsbury Co. v. FTC, 354 F.2d 952, 963-64 (5th Cir. 1966); 
     Koniag, Inc. v. Andrus, 580 F.2d 601, 610 (D.C. Cir.),  cert. 
     denied, 439 U.S. 1052 (1978); cf., The Ethics Manual of the 
     House of Representatives, pages 244-45.
       Apart from legal concerns, we note that Director Seidman 
     was not involved in the agency's filing of the charges in the 
     case (which occurred two years before her appointment). To 
     maintain her impartiality as final decision-maker, she has 
     not been involved in reviewing or presenting the evidence in 
     the case, and has not participated in settlement discussions. 
     Therefore, it would be unlikely that she would have any 
     information relevant to the Task Force's inquiry regarding 
     the debt for nature campaign concerning the Headwaters Forest 
     referred to in your December 5, 2000, letter.
       To avoid compromising the Director's role as adjudicator, 
     OTS proposes to substitute my appearance and testimony as the 
     Chief Counsel for the agency. While we continue to believe 
     that the inquiry creates the potential for interfering with 
     the administrative proceeding, and should be postponed until 
     after the Director issues a final decision in the case, the 
     substitution of witnesses will lessen the potential for 
     serious harm.
           Sincerely,
                                                  Carolyn J. Buck,
                                                    Chief Counsel.
       Enclosures.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                 Washington, DC, November 8, 2000.
     Mr. Bill Isaac,
     Sarasota, FL.
       Dear Mr. Isaac: The Committee on Resources, Task Force on 
     Headwaters Forest and Related Issues, will hold an oversight 
     hearing on the subjects listed in my November 6, 2000, letter 
     to you. The time and date of the hearing will be announced 
     later, so your appearance pursuant to the subpoena that was 
     issued for your testimony on Monday, November 13, 2000, will 
     be delayed until the time set for the re-scheduled hearing. 
     So that you may properly prepare for that hearing, I offer 
     you the following information.
       This hearing will focus on your agency's role and 
     involvement in the debt for nature campaign concerning the 
     Headwaters Forest. Any comments you might have with respect 
     to this subject would be appreciated, as would your written 
     testimony. It is my understanding that your organization has 
     experience with this subject matter and has information that 
     would be most helpful to the Committee.
       Your oral testimony should not exceed five minutes and 
     should summarize your written remarks. You may introduce into 
     the record any other supporting documentation you wish to 
     present in accordance with the attached guidelines. You 
     should bring appropriate staff with knowledge of the subject 
     matter of the hearing who can assist you with answers 
     required by the Task Force. I reserve the right to place any 
     witness under oath. If you are sworn in, you may be 
     accompanied by counsel to advise on the witness' rights under 
     the Fifth Amendment to the Constitution.
       The Rules of the Committee on Resources and of the U.S. 
     House of Representatives require that all witnesses appearing 
     before the committee must to the greatest extent practicable 
     include with his or her written testimony a current resume 
     summarizing education, experience and affiliations pertinent 
     to the subject matter of the hearing. In addition, to the 
     extent practicable, each nongovernmental witness must 
     disclose the amount and source of Federal grants or contracts 
     received with the current or prior two fiscal years. If the 
     witness represents an organization, he or she must provide 
     the same information with regard to the organization. The 
     information disclosed must be relevant to the subject matter 
     of the hearing and the witnesses representational capacity at 
     the hearing. Witnesses are not required to disclose federal 
     entitlement payments such as social security, medicare, or 
     other income support payments (such as crop or commodity 
     support payments). In order to assist in meeting the 
     requirement of the rule, we have attached a form which you 
     may complete to aid in complying with this rule. Should you 
     wish to fulfill the disclosure requirement by submitting the 
     information in some other form or format, you may do so.
       In order to fully prepare for this hearing, 25 copies of 
     your testimony along with your disclosure should be submitted 
     to Debbie Callis, Deputy Chief Clerk, Committee on Resources, 
     Room 1328 Longworth House Office Building, no later than 48 
     hours prior to the date of the scheduled hearing. In 
     addition, consistent with the Americans with Disabilities 
     Act, if your staff requires any reasonable accommodations for 
     a disability to facilitate your appearance, please contact 
     the Clerk mentioned above. Should you or your staff have any 
     questions or need further information regarding the substance 
     of the hearing, please contact Duane Gibson, General Counsel, 
     Oversight and Investigations on (202) 225-1064.
           Sincerely,
     John T. Doolittle,
       Chairman, Task Force on Headwaters Forest and Related 
     Issues.
     Attachments.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                 Washington, DC, November 8, 2000.
     Hon. Donna A. Tanoue,
     Chairman, Federal Deposit Insurance Corporation, Washington, 
         DC
       Dear Ms. Tanoue: The Committee on Resources, Task Force on 
     Headwaters Forest and Related Issues, will hold an oversight 
     hearing on the subjects listed in my November 6, 2000, letter 
     to you. The time and date of the hearing will be announced 
     later, so your appearance pursuant to the subpoena that was 
     issued for your testimony on Monday, November 13, 2000, will 
     be delayed until the time set for the re-scheduled hearing. 
     So that you properly prepare for that hearing, I offer you 
     the following information.
       This hearing will focus on your agency's role and 
     involvement in the debt for nature campaign concerning the 
     Headwaters Forest. Any comments you might have with respect 
     to this subject would be appreciated, as would your written 
     testimony. It is my understanding that your organization has 
     experience with this subject matter and has information that 
     would be most helpful to the Committee.
       Your oral testimony should not exceed five minutes and 
     should summarize your written remarks. You may introduce into 
     the record any other supporting documentation you wish to 
     present in accordance with the attached guidelines. You 
     should bring appropriate staff with knowledge of the subject 
     matter of the hearing who can assist you with answers 
     required by the Task Force. I reserve the right to place any 
     witness under oath. If you are sworn in, you may be 
     accompanied by counsel to advise on the witness' rights under 
     the Fifth Amendment to the Constitution.
       The Rules of the Committee on Resources and of the U.S. 
     House of Representatives require that all witnesses appearing 
     before the committee must to the greatest extent practicable 
     include with his or her written testimony a current resume 
     summarizing education, experience and affiliations pertinent 
     to the subject matter of the hearing. In addition, to the 
     extent practicable, each nongovernmental witness must 
     disclose the amount and source of Federal grants or contracts 
     received with the current or prior two fiscal years. If the 
     witness represent an organization, he or she must provide the 
     same information with regard to the organization. The 
     information disclosed must be relevant to the subject matter 
     of the hearing and witnesses representational capacity at the 
     hearing. Witnesses are not required to disclose federal 
     entitlement payments such as social security, medicare, or 
     other income support payments (such as crop or commodity 
     support payments). In order to assist in meeting the 
     requirement of the rule, we have attached a form which you 
     may complete to aid in complying with this rule. Should you 
     wish to fulfill the disclosure requirement by submitting the 
     information in some other form or format, you may do so.
       In order to fully prepare for this hearing, 25 copies of 
     your testimony along with your disclosure should be submitted 
     to Debbie Callis, Deputy Chief Clerk, Committee on Resources, 
     Room 1328 Longworth House Office Building, no later than 48 
     hours prior to the date of the scheduled hearing. In 
     addition, consistent with the Americans with Disabilities 
     Act, if your staff requires any reasonable accommodations for 
     a disability to facilitate your appearance, please contact 
     the Clerk mentioned above. Should you or your staff have any 
     questions or need further information regarding the substance 
     of the hearing, please contact Duane Gibson, General Counsel, 
     Oversight and Investigations on (202) 225-1064.
           Sincerely,
     John T. Doolittle,
       Chairman, Task Force on Headwaters Forest and Related 
     Issues.
     Attachments.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                 Washington, DC, November 8, 2000.
     Hon. Ellen Seidman,
     Director, Office of Thrift Supervision, Washington, DC.
       Dear Ms. Seidman: The Committee on Resources, Task Force on 
     Headwaters Forest and Related Issues, will hold an oversight 
     hearing on the subjects listed in my November 6, 2000, letter 
     to you. The time and date of the hearing will be announced 
     later, so your appearance pursuant to the subpoena that was 
     issued for your testimony on Monday, November 13, 2000, will 
     be delayed until the time set for the re-scheduled hearing. 
     So that you may properly prepare for that hearing, I offer 
     you the following information.
       This hearing will focus on your agency's role and 
     involvement in the debt for nature campaign concerning the 
     Headwaters Forest. Any comments you might have with respect 
     to this subject would be appreciated, as would your written 
     testimony. It is my understanding that your organization has 
     experience with this subject matter and has information that 
     would be most helpful to the Committee.
       Your oral testimony should not exceed five minutes and 
     should summarize your written remarks. You may introduce into 
     the record any other supporting documentation you wish to 
     present in accordance with the attached guidelines. You 
     should bring appropriate staff with knowledge of the subject

[[Page E2511]]

     matter of the hearing who can assist you with answers 
     required by the Task Force. I reserve the right to place any 
     witness under oath. If you are sworn in, you may be 
     accompanied by counsel to advise on the witness' rights under 
     the Fifth Amendment to the Constitution.
       The Rules of the Committee on Resources and of the U.S. 
     House of Representatives require that all witnesses appearing 
     before the committee must to the greatest extent practicable 
     include with his or her written testimony a current resume 
     summarizing education, experience and affiliations pertinent 
     to the subject matter of the hearing. In addition, to the 
     extent practicable, each nongovernmental witness must 
     disclose the amount and source of Federal grants or contracts 
     received with the current or prior two fiscal years. If the 
     witness represents an organization, he or she must provide 
     the same information with regard to the organization. The 
     information disclosed must be relevant to the subject matter 
     of the hearing and the witnesses representational capacity at 
     the hearing. Witnesses are not required to disclose federal 
     entitlement payments such as social security, medicare, or 
     other income support payments (such as crop or commodity 
     support payments). In order to assists in meeting the 
     requirement of the rule, we have attached a form which you 
     may complete to aid in complying with this rule. Should you 
     wish to fulfill the disclosure requirement by submitting the 
     information in some other form or format, you may do so.
       In order to fully prepare for this hearing, 25 copies of 
     your testimony along with your disclosure should be submitted 
     to Debbie Callis, Deputy Chief Clerk, Committee on Resources, 
     Room 1328 Longworth House Office Building, no later than 48 
     hours prior to the date of the scheduled hearing. In 
     addition, consistent with the Americans with Disabilities 
     Act, if your staff requires any reasonable accommodations for 
     a disability to facilitate your appearance, please contact 
     the Clerk mentioned above. Should you or your staff have any 
     questions or need further information regarding the substance 
     of the hearing, please contact Duane Gibson, General Counsel, 
     Oversight and Investigations on (202) 225-1064.
           Sincerely,
     John T. Doolittle,
       Chairman, Task Force on Headwaters Forest and Related 
     Issues.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                 Washington, DC, November 6, 2000.
     Mr. Bill Isaac,
     Sarasota, FL.
       Dear Mr. Isaac: The House Committee on Resources, acting 
     through the Task Force on the Headwaters Forest and Related 
     Issues, is pursuing an inquiry into matters related to the 
     Headwaters Forest (which is managed by the Bureau of Land 
     Management and was purchased pursuant to Title V of P.L. 105-
     83). Those matters include (1) the Federal Deposit Insurance 
     Corporation's (FDIC) and the Office of Thrift Supervision's 
     (OTS) advancement of claims against private parties to 
     ultimately obtain additional parcels of land near or adjacent 
     to the Headwaters Forest owned by the Pacific Lumber Company; 
     (2) the potential impact of advancement of such claims to 
     expand the Headwaters Forest; and (3) the matters outlined in 
     a June 16, 2000, letter initiating an oversight review 
     concerning the Headwaters Forest. The subject mater of the 
     inquiry falls under the jurisdiction of this Committee 
     pursuant to Articles I and IV of the U.S. Constitution, Rules 
     X and XI of the Rules of the House of Representatives, and 
     Rule 6(a) of the Rules of the Committee on Resources. A copy 
     of the rules is enclosed. Note Rule 4(f) regarding the 
     swearing of witnesses, which is my policy for hearings. 
     Therefore, you may bring a counsel to advise you of any 
     constitutional rights if you desire.
       Because of your agency's role in the matter, you may 
     possess information that will be helpful in the deliberations 
     of the Task Force and the Committee. Therefore, you will be 
     receiving a subpoena for your appearance and testimony before 
     a meeting of the Task Force. The subpoena schedules your 
     appearance for November 13, 2000, at 10:00 AM. The nature of 
     this subpoena is continuing, so the date and time may change 
     after final schedules for the post-election session of the 
     House are known. Committee staff will inform you in advance 
     should scheduling changes be necessary.
       We very much appreciate your cooperation with this inquiry 
     and the production of records to date. The matters under 
     review are very important, and your assistance may prove to 
     be indispensable. Should you have any questions about your 
     appearance and testimony, please contact Mr. Duane Gibson, 
     General Counsel, Oversight and Investigations, at 202-225-
     1064.
           Sincerely,
     John T. Doolittle,
       Chairman, Task Force on Headwaters Forest and Related 
     Issues.
                                  ____

                                         House of Representatives,


                                       Committee on Resources,

                                 Washington, DC, November 6, 2000.
     Hon. Ellen Seidman,
     Director, Office of Thrift Supervision, Washington, DC.
       Dear Ms. Seidman: The House Committee on Resources, acting 
     through the Task Force on the Headwaters Forest and Related 
     Issues, is pursuing an inquiry into matters related to the 
     Headwaters Forest (which is managed by the Bureau of Land 
     Management and was purchased pursuant to Title V of P.L. 105-
     83). Those matters include (1) the Federal Deposit Insurance 
     Corporation's (FDIC) and the Office of Thrift Supervision's 
     (OTS) advancement of claims against private parties to 
     ultimately obtain additional parcels of land near or adjacent 
     to the Headwaters Forest owned by the Pacific Lumber Company; 
     (2) the potential impact of advancement of such claims to 
     expand the Headwaters Forest; and (3) the matters outlined in 
     a June 16, 2000, letter initiating an oversight review 
     concerning the Headwaters Forest. The subject matter of the 
     inquiry falls under the jurisdiction of this Committee 
     pursuant to Articles I and IV of the U.S. Constitution, Rules 
     X and XI of the Rules of the House of Representatives, and 
     Rule 6(a) of the Rules of the Committee on Resources. A copy 
     of the rules is enclosed. Note Rule 49f) regarding the 
     swearing of witnesses, which is my policy for hearings. 
     Therefore, you may bring a counsel to advise you of any 
     constitutional rights if you desire.
       Because of your agency's role in the matter, you may 
     possess information that will be helpful in the deliberations 
     of the Task Force and the Committee. Therefore, you will be 
     receiving a subpoena for your appearance and the testimony 
     before a meeting of the Task Force. The subpoena schedules 
     your appearance for November 13, 2000, at 10:00 AM. The 
     nature of this subpoena is continuing, so the date and time 
     may change after final schedules for the post-election 
     session of the House are known. Committee staff will inform 
     you in advance should scheduling changes be necessary.
       We very much appreciate your cooperation with this inquiry 
     and the production of records to date. The matters under 
     review are very important, and your assistance may prove to 
     be indispensable. Should you have any questions about your 
     appearance and testimony, please contact Mr. Duane Gibson, 
     General Counsel, Oversight and Investigations, at 202-225-
     1064.
           Sincerely,
     John T. Doolittle,
       Chairman, Task Force on Headwaters Forest and Related 
     Issues.

                                  ____
                                  

                     Subpoena Duces Tecum (Hearing)


  By Authority of the House of Representatives of the Congress of the 
                        United States of America

 To The Honorable Ellen Seidman, Director, Office of Thrift Supervision

       You are hereby commanded to be and appear before the 
     Committee on Resources, Task Force on the Headwaters Forest 
     and Related Issues of the House of Representatives of the 
     United States, of which the Hon. John Doolittle is chairman, 
     in Room 1324 of the Longworth Building, in the city of 
     Washington, on November 13, 2000, at the hour of 10:00 AM, 
     then and there to produce the things identified on the 
     attached schedule and to testify touching matters of inquiry 
     committed to said Committee; and you are not to depart 
     without leave of said Committee.
       To authorized staff of the Committee on Resources or the 
     U.S. Marshals Service to serve and make return.
       Witness my hand and the seal of the House of 
     Representatives of the United States, at the city of 
     Washington, this 4th day of November, 2000.
                                              Don Young, Chairman.
       Attest: Jeff Trandahl, Clerk.


                          Schedule of Records

       All records not priorly produced pursuant to the subpoena 
     and Schedule of Records dated 30 June 2000 issued to you by 
     Chairman Don Young.
       All records created in response to this subpoena and the 
     subpoena dated 30 June 2000 issued to you by Chairman Don 
     Young.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                 Washington, DC, November 6, 2000.
     Hon. Donna A. Tanoue,
     Chairman, Federal Deposit Insurance Corporation, Washington, 
         DC
       Dear Ms. Tanoue: The House Committee on Resources, acting 
     through the Task Force on the Headwaters Forest and Related 
     Issues, is pursuing an inquiry into matters related to the 
     Headwaters Forest (which is managed by the Bureau of Land 
     Management and was purchased pursuant to Title V of P.L. 105-
     83). Those matters include (1) the Federal Deposit Insurance 
     Corporation's (FDIC) and the Office of Thrift Supervision's 
     (OTS) advancement of claims against private parties to 
     ultimately obtain additional parcels of land near or adjacent 
     to the Headwaters Forest owned by the Pacific Lumber Company; 
     (2) the potential impact of advancement of such claims to 
     expand the Headwaters Forest; and (3) the matters outlined in 
     a June 16, 2000, letter initiating an oversight review 
     concerning the Headwaters Forest. The subject matter of the 
     inquiry falls under the jurisdiction of this Committee 
     pursuant to Articles I and IV of the U.S. Constitution, Rules 
     X and XI of the Rules of the House of Representatives, and 
     Rule 6(a) of the Rules of the Committee on

[[Page E2512]]

     Resources. A copy of the rules is enclosed. Note Rule 4(f) 
     regarding the swearing of witnesses, which is my policy for 
     hearings. Therefore, you may bring a counsel to advise you of 
     any constitutional rights if you desire.
       Because of your agency's role in the matter, you may 
     possess information that will be helpful in the deliberations 
     of the Task Force and the Committee. Therefore, you will be 
     receiving a subpoena for your appearance and testimony before 
     a meeting of the Task Force. The subpoena schedules your 
     appearance for November 13, 2000, at 10:00 AM. The nature of 
     this subpoena is continuing, so the date and time may change 
     after final schedules for the post-election session of the 
     House are known. Committee staff will inform you in advance 
     scheduling should changes be necessary.
       We very much appreciate your cooperation with this inquiry 
     and the production of records to date. The matters under 
     review are very important, and your assistance may prove to 
     be indispensable. Should you have any questions about your 
     appearance and testimony, please contact Mr. Duane Gibson, 
     General Counsel, Oversight and Investigations, at 202-225-
     1064.
           Sincerely,
                                                John T. Doolittle,
     Chairman, Task Force on Headwaters Forest and Related Issues.

                                  ____
                                  

                     Subpoena Duces Tecum (Hearing)


  By Authority of the House of Representatives of the Congress of the 
                        United States of America

             To the Honorable Donna Tanoue, Chairman, FDIC

       You are hereby commanded to be and appear before the 
     Committee on Resources, Task Force on the Headwaters Forest 
     and Related Issues of the House of Representatives of the 
     United States, of which the Hon. John Doolittle is chairman, 
     in Room 1324 of the Longworth Building, in the city of 
     Washington, on November 13, 2000, at the hour of 10:00 AM, 
     then and there to produce the things identified on the 
     attached schedule and to testify touching matters of inquiry 
     committed to said Committee; and you are not to depart 
     without leave of said Committee.
       To authorized staff of the Committee on Resources or the 
     U.S. Marshals Service to serve and make return.
       Witness my hand and the seal of the House of 
     Representatives of the United States, at the city of 
     Washington, this 4th day of November 2000.
                                              Don Young, Chairman.
       Attest: Jeff Trandahl, Clerk.


                          Schedule of Records

       All records not priorly produced pursuant to the subpoena 
     and Schedule of Records dated 30 June 2000 issued to you by 
     Chairman Don Young.
       All records created in response to this subpoena and the 
     subpoena dated 30 June 2000 issued to you by Chairman Don 
     Young.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                 Washington, DC, November 6, 2000.
     Hon. Donna A. Tanoue,
     Chairman, Federal Deposit Insurance Corporation, Washington, 
         DC.
       Dear Ms. Tanoue: The House Committee on Resources, acting 
     through the Task Force on the Headwaters Forest and Related 
     Issues, is pursuing an inquiry into matters related to the 
     Headwaters Forest (which is managed by the Bureau of Land 
     Management and was purchased pursuant to Title V of P.L. 105-
     83). Those matters include (1) the Federal Deposit Insurance 
     Corporation's (FDIC) and the Office of Thrift Supervision's 
     (OTS) advancement of claims against private parties to 
     ultimately obtain additional parcels of land near or adjacent 
     to the Headwaters Forest owned by the Pacific Lumber Company; 
     (2) the potential impact of advancement of such claims to 
     expand the Headwaters Forest; and (3) the matters outlined in 
     a June 16, 2000, letter initiating an oversight review 
     concerning the Headwaters Forest. The subject matter of the 
     inquiry falls under the jurisdiction of this Committee 
     pursuant to Articles I and IV of the U.S. Constitution, Rules 
     X and XI of the Rules of the House of Representatives, and 
     Rule 6(a) of the Rules of the Committee on Resources. A copy 
     of the rules is enclosed. Note Rule 4(f) regarding the 
     swearing of witnesses, which is my policy for hearings. 
     Therefore, you may bring a counsel to advise you of any 
     constitutional rights if you desire.
       Because of your agency's role in the matter, you may 
     possess information that will be helpful in the deliberations 
     of the Task Force and the Committee. Therefore, you will be 
     receiving a subpoena for your appearance and testimony before 
     a meeting of the Task Force. The subpoena schedules your 
     appearance for November 13, 2000, at 10:00 AM. The nature of 
     this subpoena is continuing, so the date and time may change 
     after final schedules of the post-election session of the 
     House are known. Committee staff will inform you in advance 
     should scheduling changes be necessary.
       We very much appreciate your cooperation with this inquiry 
     and the production of records to date. The matters under 
     review are very important, and your assistance may prove to 
     be indispensable. Should you have any questions about your 
     appearance and testimony, please contact Mr. Duane Gibson, 
     General Counsel, Oversight and Investigations, at 202-225-
     1064.
           Sincerely,

                                            John T. Doolittle,

                                           Chairman, Task Force on
                             Headwaters Forest and Related Issues.

                                  ____
                                  

                     Subpoena Duces Tecum (Hearing)


  By Authority of the House of Representatives of the Congress of the 
                        United States of America

     To The Hon Donna Tanoue, Chairman, FDIC
       You are hereby commanded to be and appear before the 
     Committee on Resources, Task Force on the Headwaters Forest 
     and Related Issues of the House of Representatives of the 
     United States, of which the Hon. John Doolittle is chairman, 
     in Room 1324 of the Longworth Building, in the city of 
     Washington, on November 13, 2000, at the hour of 10:00 AM, 
     then and there to produce the things identified on the 
     attached schedule and to testify touching matters of inquiry 
     committed to said Committee; and you are not to depart 
     without leave of said Committee.
       To authorized staff of the Committee on Resources or the 
     U.S. Marshals Service to serve and make return.
       Witness my hand and the seal of the House of 
     Representatives of the United States, at the city of 
     Washington, this 4th day of November, 2000.
                                              Don Young, Chairman.
       Attest: Jeff Trandahl, Clerk.


                          Schedule of Records

       All records not priorly produced pursuant to the subpoena 
     and Schedule of Records dated 30 June 2000 issued to you by 
     Chairman Don Young.
       All records created in response to this subpoena and the 
     subpoena dated 30 June 2000 issued to you by Chairman Don 
     Young.

                                  ____
                                  

                                 Office of Thrift Supervision,

                                   Department of the Treasury,

                                  Washington, DC, October 6, 2000.
     Duane Gibson,
     General Counsel, Oversight and Investigation, Committee on 
         Resources, House of Representatives, Washington, DC.
       Dear Mr. Gibson: Set forth below are the OTS's responses to 
     the questions contained in your letter to me dated October 3, 
     2000.
       1. Question: ``Did Mr. Hurwitz, Maxxam, Pacific Lumber 
     Company or any representative of this individual or these 
     companies ever raise with OTS or any of its representatives 
     the notion of a debt-for-nature swap related to Headwaters?''
       OTS Response: Yes.
       Question: ``On what date did Mr. Hurwitz, Maxxam, Pacific 
     Lumber Company or any representative of this individual or 
     these entities first raise the debt-for-nature [swap] related 
     to Headwaters? When was the subject subsequently raised?''
       OTS Response: According to our records, the first debt-for-
     nature proposal made by Mr. Hurwitz's representatives to the 
     OTS was on August 13, 1996. See OTS Doc. 00546 (notes of OTS 
     Deputy Chief Counsel for Enforcement Richard Stearns, dated 
     August 13, 1996, of a telephone conversation with Mr. Tommy 
     Boggs). Our records reflect the subject was subsequently 
     raised by representatives for Mr. Hurwitz and MAXXAM on the 
     following dates:
       September 6, 1996, OTS Doc. 00547-49 (letter from Mr. John 
     Douglas, counsel for Mr. Hurwitz, to Richard Stearns and FDIC 
     Deputy General Counsel Jack Smith, dated September 6, 1996).
       September 10, 1996, OTS Doc. 00550-51 (meeting notes 
     prepared by Richard Stearns, dated September 10, 1996).
       September 24, 1996, OTS 00556-60 (handwritten notes taken 
     by OTS Associate Chief Counsel Bruce Rinaldi of a meeting 
     held on September 24, 1996), and OTS Doc. 00561-63 
     (typewritten notes of the same meeting prepared by Mr. 
     Rinaldi on the following day).
       August 27, 1997, OTS Doc. 00567-68 (typewritten notes 
     prepared by Mr. Rinaldi of telephone conversations with 
     Richard Keeton and J.C. Nickens, attorneys for Mr. Hurwitz 
     and MAXXAM, August 27, 1997).
       February 17, 1998, OTS Doc. 00899-904 (Letter from MAXXAM 
     Senior Vice President and Chief Legal Officer Byron L. Wade 
     to FDIC and OTS, dated February 17, 1998, with attached draft 
     Memorandum of Agreement); and
       October 27, 1998, OTS Doc. 00906-11 (typewritten notes of 
     settlement discussion between OTS and counsel for Mr. Hurwitz 
     and MAXXAM, prepared by Mr. Rinaldi, October 27, 1998).
       Although the first time Mr. Hurwitz's representatives 
     raised a proposed debt-for-nature settlement of the OTS's 
     potential claims with the OTS was in August 1996, see above, 
     the OTS was informed in July 1995 by the FDIC that Mr. 
     Hurwitz, MAXXAM, and Pacific Lumber Company, and the United 
     States Department of the Interior, for the sale of a portion 
     of the Headwaters Forest to the federal government. See OTS 
     Doc. 00929-33 (handwritten notes of a meeting between OTS and 
     FDIC representatives, July 26, 1995).
       3. Question: ``Who first raised the subject of [a] a debt-
     for-nature [swap] related to Headwaters raised?''
       OTS Response: The first time a representative of Mr. 
     Hurwitz raised a debt-for-nature swap with OTS was when Mr. 
     Tommy Boggs, a Washington lobbyist and attorney who 
     represented Mr. Hurwitz and MAXXAM, raised a debt-for-nature 
     settlement of OTS's potential claims with Richard Stearns, 
     OTS Deputy Chief Counsel for Enforcement.
       4. Question: ``What was the context in which it was raised? 
     In what medium was it

[[Page E2513]]

     first raised (e.g., in writing, by phone, in person)?''
       OTS Response: The context in which Mr. Boggs raised a debt-
     for-nature swap on August 13, 1996, was his proposal to 
     include a settlement of OTS's potential claims as part of the 
     negotiations then underway between Mr. Hurwitz, MAXXAM, and 
     Pacific Lumber Company, and the United States Department of 
     the Interior, for the sale of a portion of the Headwaters 
     Forest to the federal government. Mr. Boggs raised this 
     matter in a telephone call to Richard Stearns.
       I hope this fully responds to the questions contained in 
     your letter.
           Sincerely yours,
                                                  Carolyn J. Buck,
                                                    Chief Counsel.

                                  ____
                                  

                                                   Federal Deposit


                                        Insurance Corporation,

                                  Washington, DC, October 6, 2000.
     Duane Gibson,
     General Counsel, Oversight and Investigations, House of 
         Representatives, Committee on Resources, Washington, DC.
       Dear Mr. Gibson: This letter responds to your letter of 
     October 3, 2000, requesting the Federal Deposit Insurance 
     Corporation to respond to specific questions and provide 
     supporting documentation regarding the ``debt-for-nature'' 
     discussions between the FDIC and Charles Hurwitz.
       1. Question: Is the quote of Mr. Kroener cited in the 
     August 17, 2000 American Banker accurate?
       FDIC Response: A story in the August 17, 2000 American 
     Banker included a quotation from me that stated, ``The so-
     called debt-for-nature swap was first offered by Mr. 
     Hurwitz's counsel, not the FDIC. While the FDIC has said it 
     remained open to any appropriate settlement, including a 
     debt-for-nature swap, it has also told Mr. Hurwitz's lawyers 
     that the FDIC's preference is for a cash payment.'' This 
     quotation is an accurate statement.
       2. Question: On what date did Mr. Hurwitz, Maxxam, Pacific 
     Lumber Company or any Representatives of this individual or 
     these entities first raise the debt-for-nature related to 
     Headwaters? When was the subject subsequently raised?
       FDIC Response: Although the debt-for-nature swap concept 
     had been the subject of press stories and letters to the FDIC 
     by members of the public and Congress for some time, there 
     had been no discussion of this issue between FDIC and Mr. 
     Hurwitz or his representatives. In fact, the FDIC was 
     pursuing a substantial all-cash settlement which it proposed 
     to Mr. Hurwitz's attorney in a letter dated July 16, 1993.
       On or about July 13, 1995, John Martin of the law firm 
     Patton Boggs, on behalf of Mr. Hurwitz and Maxxam, called 
     Allen McReynolds, Special Assistant to the Secretary of 
     Interior, at his home at 8 p.m., urging him to contact the 
     FDIC to begin a dialogue to resolve the FDIC's claims as part 
     of a larger land transaction involving the Headwaters Forest 
     that was being considered by Mr. Hurwitz and the Department 
     of Interior. Mr. McReynolds followed up this request by 
     calling the FDIC and met with staff of the FDIC Legal 
     Division on July 21, 1995. It was during this meeting that 
     the FDIC first learned of Mr. Hurwitz's interest in including 
     FDIC claims as part of the larger Headwaters negotiations. 
     After the FDIC suit was filed in August 1995, the 
     feasibility of Mr. Hurwitz's proposal was discussed in 
     several meetings between the FDIC, the Council on 
     Environmental Quality, the Department of Interior and 
     others.
       In addition, after the filing of the FDIC's lawsuit on 
     August 2, 1995, Mr. Byron Wade, then General Counsel of 
     Maxxam, made a number of calls over several months to FDIC 
     Counsel Jeffrey Williams attempting to persuade the FDIC to 
     include settlement of its claims as part of the larger 
     government negotiations regarding the Headwaters Forest. On 
     August 12, 1996, Mr. Thomas Boggs of the law Patton Boggs, 
     representing Mr. Hurwitz, met with me and Deputy General 
     Counsel Jack Smith and proposed to settle the FDIC and the 
     Office of Thrift Supervision claims as part of an agreement 
     to trade the Headwaters Forest for other government property, 
     contingent on favorable tax rulings from the Internal Revenue 
     Service. At that meeting, Mr. Boggs indicated that Mr. 
     Hurwitz expected to minimize the financial impact of a 
     settlement on Maxxam by obtaining favorable tax advantage. I 
     advised Mr. Boggs that his proposal was unacceptable because 
     it did not provide sufficient value to the FDIC.
       On September 6, 1996, the FDIC received a letter from Mr. 
     John Douglas of the law firm of Alson & Bird, also 
     representing Mr. Hurwitz, requesting a settlement meeting 
     with the FDIC and OTS to discuss a proposal that certain 
     timber acreage by contributed to the FDIC and OTS to settle 
     our pending claims as part of a larger Headwaters deal. At 
     the meeting on September 11, 1996, Mr. Douglas proposed 
     giving the FDIC and OTS land in settlement of pending claims. 
     On this and several other occasions representatives of Mr. 
     Hurwitz indicated that they could offer more value of the 
     FDIC in trees than cash. Also on September 11th, the FDIC 
     received a ``Draft of Proposed Headwaters Forest Exchange 
     Agreement'' from Patton Boggs that proposed settlement of all 
     FDIC claims as part of the larger government Headwaters 
     exchange agreement. On September 12, 1996, the FDIC received 
     a letter from Mr. Douglas specifically authorizing the FDIC 
     to discuss this proposal with other agencies, including 
     ``representatives of the White House, the Department of the 
     Treasury, the Department of Interior, the Department of 
     Agriculture and the Justice Department [who] may all be 
     involved in such discussions.''
       All proposals that linked the FDIC and OTS cases with 
     separate negotiations Mr. Hurwitz was having with the federal 
     government over the Headwaters Forest were rejected by the 
     FDIC and OTS, despite Mr. Hurwitz's insistence that the FDIC/
     OTS claims be resolved as part of the overall agreement. The 
     FDIC declined to participate in the negotiations regarding 
     the Headwaters Agreement and its implementing legislation to 
     transfer the Headwaters Forest to the U.S. government. Mr. 
     Hurwitz eventually dropped his demand that the Headwaters 
     Agreement contain a resolution of the FDIC and OTS claims. 
     The acquisition of much of the Headwaters Forest was 
     authorized by Congress in November 1997.
       On February 17, 1998, Byron Wade on behalf of Maxxam, sent 
     a letter to the FDIC proposing a settlement of all OTS and 
     FDIC claims by transferring old growth redwoods to the FDIC. 
     On February 19, 1998, the FDIC responded by restating its 
     longstanding position that FDIC's preference was to receive a 
     cash payment. In March 1998, the FDIC informed Mr. Hurwitz's 
     attorneys that the FDIC could not accept old growth redwoods 
     to resolve the FDIC claims without additional legislation. 
     His attorneys proposed ideas to solve the problem, but 
     eventually that effort dissolved.
       In summary, the possibility of a debt-for-nature swap 
     involving the FDIC was initiated and pursued by 
     representatives of Mr. Hurwitz beginning with an indirect 
     contact in July 1995 and continuing into 1998. The effort 
     dissolved in 1998 and since then there has been no further 
     discussion of the debt-for-nature option between the parties.
       3. Question: Who first raised the subject of debt-for-
     nature related to Headwaters on behalf of Mr. Hurwitz? To 
     whom was the subject of debt-for-nature related to Headwaters 
     raised?
       FDIC Response: As stated in our response to Question 2, 
     John Martin with the law firm of Patton Boggs first raised 
     the subject of a debt-for-nature settlement on behalf of Mr. 
     Hurwitz and Maxxam indirectly with the FDIC in a telephone 
     call to Allen McReynolds, on or about July 13, 1995. Mr. 
     McReynolds subsequently raised the subject with the FDIC 
     during a meeting on July 21, 1995. This is confirmed by the 
     depositions under oath of Mr. McReynolds and Mr. Robert 
     DeHenzel, an attorney for the FDIC.
       4. Question: What was the context in which it was raised? 
     In what medium was it first raised (e.g. in writing, by 
     phone, in person)?
       FDIC Response: As stated in our response to Questions 2 and 
     3, the subject of a debt-for-nature settlement of FDIC's 
     claims was initially raised in an after hours telephone call 
     to the home of Mr. McReynolds by John Martin of the law firm 
     of Patton Boggs, on behalf of Mr. Hurwitz and Maxxam. The 
     context of this and following communications was an effort by 
     representatives of Mr. Hurwitz to include settlement of the 
     FDIC's claims as part of a negotiated transfer by Mr. Hurwitz 
     and Maxxam to the U.S. Government.
       I have enclosed copies of relevant documents already 
     produced to the Committee in response to your subpoena that 
     support this response. Please do not hesitate to contact me 
     if you have any further questions.
           Sincerely,
                                           William F. Kroener, III
                                                  General Counsel.
       Enclosures.


                                         House of Representatives,


                                       Committee on Resources,

                                  Washington, DC, October 3, 2000.
     William F. Kroener III,
     General Counsel, Federal Deposit Insurance Corporation, 
         Washington, DC.
     Carolyn J. Buck,
     Chief Counsel, Office of Thrift Supervision, Washington, DC.
       Dear Mr. Kroener and Ms. Buck: On June 16, 2000, Chairman 
     Young opened the oversight review described in a letter to 
     Ms. Tanoue, and Ms. Seidman, and assigned me as the lead 
     staff investigator for the project. On behalf of Chairman 
     Young and Task Force Chairman Doolitte, thank you for 
     providing the records that you have sent to date. I want to 
     update you on the status of the oversight project. We are now 
     reviewing the material that you provided, and will have 
     follow-up questions for certain individuals soon. The Task 
     Force for this oversight project has expanded. Enclosed you 
     will find a letter that added Representative George 
     Radanovich as a member. I thought you would like to have a 
     copy.
       In commenting about the ``debt-for-nature'' as it relates 
     to Headwaters and the FDIC and OTS matters, Mr. Kroener was 
     quoted in the August 17, 2000, American Banker as follows: 
     ``The so-called debt-for-nature swap was first offered by Mr. 
     Hurwitz's counsel, not the FDIC.'' In discussions with OTS, I 
     was told the same thing attributed to Mr. Kroener in American 
     Banker. This information and verification of it is important 
     to the oversight review, so the Chairman requests prompt 
     answers (by Friday October 6, 2000) to the questions 
     contained in this letter, along with all supporting 
     documentation that verifies the answer from the perspective 
     of the FDIC and the OTS.
       1) (FDIC only) Is the quote of Mr. Kroener cited above 
     accurate? If not, what did Mr.

[[Page E2514]]

     Kroener say in his comments to the American Banker?
       2) (OTS only) Did Mr. Hurwitz, Maxxam, Pacific Lumber 
     Company or any representatives of this individual or these 
     companies ever raise with OTS or any of its representatives 
     the notion of a debt-for-nature swap related to Headwaters?
       3) On what date did Mr. Hurwitz, Maxxam, Pacific Lumber 
     Company or any representatives of this individual or these 
     entities first raise the debt-for-nature related to 
     Headwaters? When was the subject subsequently raised?
       4) Who first raised the subject of debt-for-nature related 
     to Headwaters on behalf of Mr. Hurwitz? To whom was the 
     subject of debt-for-nature related to Headwaters raised?
       5) What was the context in which it was raised? In what 
     medium was it first raised (e.g. in writing, by phone, in 
     person)?
       Please provide all documentation supporting answers to 
     these questions (for example, copies of meeting notes or an 
     affidavit verifying the answers).
       If you have any questions, please contact me at 225-1064. 
     Thank you.
           Sincerely,
     Duane Gibson,
       General Counsel, Oversight and Investigations.
     cc: The Honorable John Doolittle.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                               Washington, DC, September 20, 2000.
     Hon. George Radanovich,
     House of Representatives, Washington, DC.
       Dear George: On August 15, 2000, the Task Force on 
     Headwaters Forest and Related Issued of the Committee on 
     Resources was established. At that time, I appointed 
     Representatives Doolittle, Pombo, and Brady to serve on the 
     Task Force, along with yet to be designated minority members.
       I know that you have been to the Headwaters Forest and are 
     interested serving on the Task Force as well. I expect that 
     the bulk of review being undertaken by the Task Force to be 
     accomplished during the last three months of this year, and 
     it is likely to include at least one hearing at some 
     juncture. Because of your interest in this subject, your 
     experience concerning the Headwaters, your desire to serve on 
     this special panel, and your willingness to participate in 
     studying this matter at a future hearing, I hereby appoint 
     you to be a Member of the Task Force.
           Sincerely,
                                                        Don Young,
                                                         Chairman.
     cc. The Honorable George Miller.
     The Honorable John Doolittle.

                                  ____
                                  

                                         Federal Deposit Insurance


                                                  Corporation,

                               Washington, DC, September 11, 2000.
     Hon. Don Young,
     Chairman, Committee on Resources, House of Representatives, 
         Washington, DC.
       Dear Mr. Chairman: The letter is in further response to the 
     subpoena duces tecum received by the Federal Deposit 
     Insurance Corporation on July 6, 2000 seeking production of 
     copies of documents regarding the Headwaters Forest, a 
     possible ``debt for nature swap'' and pending litigation 
     regarding the FDIC and Mr. Charles E. Hurwitz arising out of 
     the failure of United Savings Association of Texas (USAT).
       The enclosed documents were identified pursuant to the 
     subpoena issued by the Committee. Although these documents 
     were identified and copied in response to the subpoena, we 
     believe that they were inadvertently omitted from the several 
     boxes of documents produced by the FDIC on July 7, 2000. We 
     regret the mistake that delayed the production of these 
     documents to the Committee.
       This document production should satisfy our obligations 
     under the subpoena. As with our prior document productions to 
     the Committee, the enclosed documents include sensitive, 
     highly confidential material that is covered by attorney 
     client and/or attorney work product privileges in the ongoing 
     litigation against Mr. Hurwitz, including documents that Mr. 
     Hurwitz and his representatives are not entitled to review 
     through the court proceedings. The FDIC does not waive any 
     privileges belonging to the FDIC or any other agency as a 
     result of providing these documents to the Committee pursuant 
     to the subpoena.
       In addition, we are producing documents under the subpoena 
     that are especially sensitive. These documents state the 
     FDIC's internal valuation of the case for settlement 
     purposes. Because disclosure of this information would be 
     extremely harmful to the FDIC's litigation and settlement 
     position, we are providing the full document for the 
     Committee's review, but have redacted the actual valuation. 
     This will allow the Committee to review any material in the 
     document regarding the stated subjects of the investigation 
     while ensuring against an inadvertent release of this highly 
     sensitive information. If the Committee has any concerns 
     about the redactions, we will permit the Committee staff to 
     inspect the unredacted versions in our offices.
       As we stated in our prior correspondence, the FDIC would 
     strongly object to the dissemination of privileged and 
     confidential documents to parties other than Committee 
     Members and staff. We have identified the documents 
     containing confidential information with a stamp bearing the 
     designation ``CONFIDENTIAL.'' The failure of USAT cost the 
     American taxpayer approximately $1.6 billion and the 
     inappropriate release of these documents could significantly 
     harm the FDIC's ability to litigate this matter and redue 
     damages otherwise recoverable to reimburse taxpayers for the 
     losses arising out of this failure.
       If you have any questions regarding this production of 
     documents, please do not hesitate to contact Eric Spitler of 
     the FDIC's Office of Legislative Affairs at (202) 898-3837.
           Sincerely,
                                          William F. Kroener, III,
                                                  General Counsel.
     Enclosures
     cc: Honorable George Miller.

                                  ____
                                  

    Attachments Omitted and Included in an Appendix Where Necessary


                                     Office of Thrift Supervision,


                                   Department of the Treasury,

                                  Washington, DC, August 24, 2000.
     Hon. Don Young,
     Chairman, Committee on Resources, House of Representatives, 
         Washington, DC.
     Hon. George Miller,
     Ranking Minority Member, Committee on Resources, House of 
         Representatives, Washington, DC.
     Re: U.S. House of Representatives, Committee on Resources 
         Task Force on the Headwaters Forest and Related Issues of 
         the Committee on Resources
       Dear Chairman Young and Congressman Miller: The Office of 
     Thrift Supervision (``OTS'') recently received a copy of the 
     above-referenced task force charter that authorizes an 
     investigation into the alleged ``Office of Thrift 
     Supervisions's (OTS) advancement of claims against private 
     parties to ultimately obtain additional parcels of land near 
     or adjacent to the Headwaters Forest owned by the Pacific 
     Lumber Company.'' The claims referred to involve a pending 
     administrative proceeding initiated in 1995 by the OTS, In 
     the Matter of United Savings Association of Texas et al., OTS 
     Order No. AP 95-40 (December 26, 1995), against Charles E. 
     Hurwitz and others in connection with the 1988 failure of 
     United Savings Association of Texas (USAT).
       According to Chairman Young's memorandum, dated August 15, 
     2000, that accompanied the task force charter, several 
     members of the Resources committee requested that the 
     Committee conduct oversight ``on attempts to break the 
     Headwaters Forest agreement by adding more acreage to the 
     forest through a debt for nature swap.'' As detailed in the 
     documentation provided by OTS pursuant to the Committee's 
     June 30, 2000, subpoena, the OTS matter is an administrative 
     proceeding brought by a federal banking regulatory agency to 
     address violations of the banking laws. The proceeding was 
     initiated nearly two years prior to the passage of the Public 
     Law 106-180 (the ``Headwaters Forest Legislation'') and, 
     thus, its initiation could not ``run contrary to the 
     Headwaters acquisition statute.'' In addition, the pending 
     OTS administrative proceeding was known to Charles Hurwitz (a 
     respondent in the proceeding), and to the Pacific Lumber 
     Company, at the time the Headwaters Forest agreement was 
     approved by Congress. The legislation does not mention the 
     OTS proceeding nor purport to resolve the OTS's claims 
     against Mr. Hurwitz. This contrasts to the legislation's 
     express reference to at least two then pending legal actions 
     in the United States Court of Federal Claims and the 
     California Superior Court.
       Additionally, the documentation that the OTS has already 
     turned over to the Committee in response to its June 30, 
     2000, subpoena shows that the OTS case was brought to address 
     violations of banking laws. The subject of a debt for nature 
     swap was first injected into this matter when counsel for 
     Charles Hurwitz proposed transferring timberland to the OTS 
     as a means of settling the claims for restitution asserted by 
     this agency. OTS has consistently responded to these 
     proposals by stating that it prefers that any settlement 
     include cash payments by respondents.
       In my letter to the Resource Committee dated June 23, 2000, 
     responding to the Committee's request for documents, OTS 
     advised the Committee of our concern that the release of 
     confidential information regarding the OTS administrative 
     proceeding ``might compromise our pending adjudicatory 
     process.'' The Committee's chartering of a task force to 
     investigate the OTS proceeding has heightened that concern. 
     There is the potential that the actions by the Committee may 
     be later viewed as having deprived the parties to the 
     administrative proceeding of due process and fairness and 
     could result in the final administrative determination in 
     this proceeding being nullified by a court of law. See, e.g., 
     Pillsbury Co. v. FTC., 354 F.2d 952, 963 (5th Cir. 1966); 
     Koniag Inc. v. Andrus, 580 F2d 601, 610 (D.C. Cir.) cert. 
     denied, 439 U.S. 1052 (1978).
       As I explained in my June 23, 2000, letter, the OTS 
     enforcement action against Charles E. Hurwitz is still 
     pending before this agency. At the present time, all evidence 
     has been presented to the trier of fact and the matter is 
     under advisement before an Administrative Law Judge 
     (``ALJ''). Once the ALJ renders his recommended decision, the 
     matter will go before the Director of the OTS for further 
     briefing by the parties and a final agency determination. To 
     avoid any

[[Page E2515]]

     claims of unfairness or denial of due process, we urge the 
     Committee to forbear from carrying out its proposed 
     investigation at least until the Director has issued a final 
     agency decision in this matter. This would allow the 
     Committee a full opportunity to investigate, without risking 
     an unintended interference with the ongoing OTS 
     administrative proceeding.
       Thank you for your consideration of this request.
           Sincerely,
                                                  Carolyn J. Buck,
                                                    Chief Counsel.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                  Washington, DC, August 16, 2000.
     Hon. Bruce Babbitt,
     Secretary, Department of the Interior, Washington, DC.
       Dear Mr. Secretary: The legislative, oversight, and 
     investigative responsibilities under Rule X and Rule XI of 
     the Rules of the United States House of Representatives, Rule 
     6(b) of the Rules for the Committee on Resources (the 
     Committee), 106th Congress, and Article I and Article IV of 
     the United States Constitution, require that the Committee on 
     Resources oversee and review the laws, policies, and 
     practices, and operation of the Department of the Interior 
     (the Department), the public domain lands and resources 
     managed by the Department, and any other entity that relates 
     to or takes action to influence departments or matters and 
     laws within the Committee's jurisdiction under rule X(l).
       This jurisdiction extends to Title V of P.L. 105-83 
     concerning the legislation that authorized the acquisition of 
     the Headwaters Forest (land that is now managed by the Bureau 
     of Land Management) from Pacific Lumber Company. We 
     cooperatively worked on this legislation and agreed on the 
     terms of Title V, which embodied the agreement to acquire 
     Headwaters. The law extends to any future additions of 
     related parcels of the Headwaters Forest from Pacific Lumber 
     Company, including additions through ``debt for nature.'' 
     Members of this Committee, including me, approved of the 
     inclusion of this legislative language in the Department of 
     Interior and Related Agencies Appropriations Act, 1998.
       The oversight outlined in this letter is being conducted 
     through the Task Force on the Headwaters Forest and Related 
     Issues, which commences today, under the authority of Rule 7 
     of the Rules for the Committee on Resources.
       Oversight Matters Under Review. We have initiated and now 
     expanded an oversight review of the Department of the 
     Interior's involvement in the Federal Deposit Insurance 
     Corporation's (FDIC) and the Office of Thrift Supervision's 
     (OTS) advancement of claims against private parties to 
     ultimately obtain additional parcels of the Headwaters Forest 
     owned by the Pacific Lumber Company. This advancement runs 
     contrary to the Headwaters acquisition statute referenced 
     above. The advancement may be at the behest of militant 
     elements of the extreme environmental community. The 
     advancement is being undertaken via a 1995 civil suit (and 
     any subsequent OTS administrative action) filed by the FDIC 
     in the United States District Court for the Southern District 
     of Texas against Mr. Charles E. Hurwitz in connection with 
     the 1988 failure of the United Savings Association of Texas 
     (USAT). The oversight review includes these subjects.
       We have several Department records in our possession that 
     relate to the matters under review, and we are alarmed about 
     the apparent deep involvement between members of your staff 
     and the banking regulators in pursuing and continuing to 
     pursue the above-referenced actions to leverage yet more 
     Headwaters ``nature'' for a questionable and uncertain 
     ``debt.''
       We find disturbing that the Department of the Interior 
     documents that are now available in the press clearly state 
     that there is ``support for a debt-for-nature swap for the 
     FDIC and OTS claims . . .'' and we are alarmed with what your 
     Special Assistant, Mr. Allen McReynolds reports about the 
     interaction between the Department and the banking 
     regulators. He unequivocally stated that, ``FDIC and OTS are 
     amendable to this strategy [the debt for nature acquisition 
     strategy] if the Administration supports it.'' The admission 
     of coordination with banking regulators and backdoor lobbying 
     may be common practice for your department. However, your 
     department, and perhaps others, appears to have influenced 
     the judgement of banking regulators, who were ``amenable'' to 
     creating a debt that could be swapped for nature.
       Request for Records. As this oversight inquiry has evolved, 
     the need for departmental records related to the subject of 
     the oversight review has become increasingly apparent. The 
     Committee and the Task Force require the prompt production of 
     all departmental records by the FDIC and OTS that relate to 
     the matter under review as outlined above. In addition, the 
     attached Schedule of Records specifies certain records or 
     categories of records that are also requested and must be 
     produced pursuant to the authority and under deadlines in 
     this letter. The schedule also contains the definition that 
     applies to the term ``records.''
       Interviews. In addition to the information listed above, 
     this inquiry may include a request to interview you and those 
     in the employ of the Department who have knowledge of the 
     matters under review.
       Deadline. We request that you strictly comply with the 
     deadlines for production which are as follows: response to 
     this letter by August 22, 2000, and delivery of the records 
     4:00 p.m., Friday, August 25, 2000, to the attention of Mr. 
     Duane Gibson, 1324 Longworth House Office Building. We also 
     request that you provide two sets of all records requested.
       Lead Investigator. This review will be led at the staff 
     level by Mr. Duane Gibson, the Committee's General Counsel 
     for Oversight and investigations. We request that your staff 
     contact him (202-225-1064) after your receipt and review of 
     this letter. Mr. Gibson can assist with any questions. Thank 
     you for your cooperation with this review of matters under 
     the jurisdiction of this Committee. Please be aware that the 
     Committee has the authority to compel production of the 
     records that are requested should they not be produced by the 
     deadline listed above. We hope that we will not need to 
     employ this authority. We anticipate your cooperation, just 
     as we cooperated to write the statute and appropriated the 
     funds to purchase the Headwaters Forest.
           Sincerely,
     Don Young,
       Chairman, Committee on Resources.
     John T. Doolittle,
       Chairman, Task Force on the Headwaters Forest And Related 
     Issues.
     cc: Members, Committee on Resources

                                  ____
                                  

                          Schedule of Records


            Headwaters Forest Additions and Debt for Nature

       1. All records related to or referring to any contact 
     between any employee of the Department of the Interior 
     (including the Office of the Secretary and the Bureau of Land 
     Management) and the FDIC or OTS (or any employee of the OTS 
     or FDIC) that relates to or mentions the Headwaters Forest or 
     ``debt for nature.''
       2. All records that relate in any way to the FDIC or OTS 
     advancement of claims against Mr. Charles Hurwitz and/or 
     MAXXAM that also in any way mention ``debt for nature,'' the 
     Headwaters Forest, or the Pacific Lumber Company, including 
     but not limited to any records relate to obtaining additional 
     parcels of land referred to as of the Headwaters Forest, 
     which were or are owned by the Pacific Lumber Company.
       3. All records that relate in any way to the FDIC or OTS 
     advancement of claims against Mr. Charles Hurwitz and/or 
     MAXXAM that also in any way mention (or are to or from) the 
     Rose Foundation, the Turner Foundation or any other grant-
     making organization and that in any way relate to strategies 
     or legal theories for acquisitions or potential acquisitions 
     of the Headwaters Forest or the concept of ``debt for 
     nature''.
       4. All records that relate in any way to the FDIC or OTS 
     advancement of claims against Mr. Charles Hurwitz and/or 
     MAXXAM that also in any way mention (or are to or from) Earth 
     First! North Coast Earth First!, Bay Area Coalition on 
     Headwaters, Circle of Life Foundation, The Trees Foundation, 
     The Humboldt Watershed Council, The National Audubon Society, 
     and/or the Sierra Club.
       5. All records to, from, or referring to Mr. Allen 
     McReynolds that also relate to or refer to the Headwaters 
     Forest, the FDIC or the OTS, or debt for nature.
       6. All records to, from, or referring to Ms. Kathleen 
     (Katie) McGinty that also relate to or refer to the 
     Headwaters Forest, the FDIC or the OTS, or debt for nature.
       7. All records referring or related to a meeting that 
     occurred on October 22, 1995, in which the Council on 
     Environmental Quality Chairperson attended and that also 
     relate to or refer to the Headwaters Forest, the FDIC or the 
     OTS, or debt for nature.
       8. All records to or from anyone in the Office of the 
     Secretary that also relate to or refer to the Headwaters 
     Forest and the FDIC or the OTS.
       9. All records that relate to or refer to any contact or 
     communication between any employee of the Department of the 
     Interior and Mr. Bruce Rinaldi, Mr. Ken Guido, Mr. Robert 
     DeHenzel, or Mr. Jeff Williams.
       10. All records showing or related to any contact or 
     communication between anyone employed by, assigned to, or 
     associated with the Department of the Interior and anyone 
     employed by, assigned to, or associated with the White House 
     (including the Council on Environmental Quality), The Office 
     of the Vice President that relate in any way to the FDIC or 
     OTS claims against Mr. Charles Hurwitz and/or MAXXAM that 
     also in any way mention, refer to, or relate to ``debt for 
     nature,'' the Headwaters Forest, or the Pacific Lumber 
     Company.
     Definitions
       For purposes of this inquiry, the term ``record'' or 
     ``records'' includes, but is not limited to, copies of any 
     item written, typed, printed, recorded, transcribed, filmed, 
     graphically portrayed, video or audio taped, however produced 
     or reproduced, and includes, but is not limited to any 
     writing, reproduction, transcription, photograph, or video or 
     audio recording, produced or stored in any fashion, including 
     any and all computer entries, accounting materials, 
     memoranda, minutes, diaries, telephone logs, telephone 
     message slips, electronic messages (e-mails), tapes, notes, 
     talking points, letters, journal entries, reports, studies, 
     drawings,

[[Page E2516]]

     calendars, manuals, press releases, opinions, documents, 
     analyses, messages, summaries, bulletins, disks, briefing 
     materials and notes, cover sheets or routing cover sheets or 
     any other machine readable material of any sort whether 
     prepared by current or former employees, agents, consultants 
     or by any non-employee without limitation and shall also 
     include redacted and unredacted versions of the same record. 
     The term includes records that are in the physical possession 
     of the Department of the Interior and records that were 
     formerly in the physical possession of the Department, as 
     well as records that are in storage.
       Furthermore, with respect to this request, the terms 
     ``refer'', ``relate'', and ``concerning'', means anything 
     that constitutes, contains, embodies, identifies, mentions, 
     deals with, in any manner that matter under review.
       ``FDIC'' means Federal Deposit Insurance Corporation.
       ``OTS'' means Office of Thrift Supervision.
       ``Department'' means Department of the Interior.
       MAXXAM means MAXXAM Inc., Pacific Lumber Company, and 
     United Savings Association of Texas.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                  Washington, DC, August 15, 2000.

Task Force on the Headwaters Forest and Related Issues of the Committee 
                              on Resources

     Authority
       Pursuant to Rule 7 of the Committee on Resources 
     (Committee), the Chairman of the Committee is authorized, 
     after consultation with the Ranking Minority Member, to 
     appoint task forces to carry out certain duties and functions 
     of the Committee. The Chairman hereby appoints the Members 
     listed below to the Task Force on the Headwaters Forest and 
     Related Issues to carry out the oversight and investigative 
     duties and functions of the Committee regarding the oversight 
     review specified in the June 16, 2000, letter (attached 
     hereto), subject to the terms and conditions listed below.
     Members
       Republicans--Doolittle (Chairman), Pombo, Thornberry, 
     Brady, and Young (ex officio).
       Democrats--Three Members of the Committee recommended by 
     the Ranking Minority Member and Miller (ex officio).
     Duration
       The Task Force will commence on August 16, 2000, and will 
     terminate on December 31, 2000, or on an earlier date that 
     the Chairman of the Committee may designate. With a duration 
     of less than six months, the task force will not count 
     against the subcommittee limit under Rule X, clause 5(b)(2) 
     of the Rules of the House of Representatives.
     Jurisdiction
       The Task Force shall review and study the following matters 
     related to the Headwaters Forest (which is managed by the 
     Bureau of Land Management and was purchased pursuant to Title 
     V of P.L. 105-83): (1) the Federal Deposit Insurance 
     Corporation's (FDIC) and the Office of Thrift Supervision's 
     (OTS) advancement of claims against private parties to 
     ultimately obtain additional parcels of land near or adjacent 
     to the Headwaters Forest owned by the Pacific Lumber Company; 
     (2) the potential impact of advancement of such claims to 
     expand the Headwaters Forest; and (3) the matters outlined in 
     the attached June 16, 2000, letter initiating an oversight 
     review concerning the Headwaters Forest.
     Hearings
       Subject to the Rules of the House of Representative and the 
     Rules of the Committee on Resources, the Task Force may hold 
     hearings on matters within its jurisdiction. The Chairman of 
     the Committee shall approve all hearings prior to their 
     announcement.
     Staff
       The Chairman of the Committee shall designate professional 
     and support staff to assist the Task Force in carrying out 
     its duties and functions. Consistent with the Rules of the 
     House of Representatives, persons employed by personal 
     offices of Members may not serve as staff to the Committee 
     and its subdivisions. The Ranking Minority Member may also 
     designate staff to assist the Task Force.
     Travel
       All travel by Members and staff of the Task Force shall be 
     authorized pursuant to Rule 12 of the Committee and other 
     applicable rules and guidelines and shall be limited to funds 
     allocated by the Chairman of the full Committee for that 
     purpose. Committee funds may not be used to pay for travel by 
     persons not employed by the Committee and all travel shall 
     conform with applicable rules of the House of Representatives 
     and the Committee.
     Rules
       A task force is a subdivision of the Committee and shall 
     comply with all applicable rules and guidelines of the House 
     of Representatives, the Committee on Resources, and the 
     Committee on House Oversight. The activities of the Task 
     Force are subject to addional directon and supervision as the 
     Chairman of the Committee may from time to time impose.
                                                        Don Young,
                                                         Chairman.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                  Washington, DC, August 15, 2000.
     To: Members, Committee on Resources
     From: Don Young, Chairman
     Re: Task Force
       Several Members have requested that the Committee conduct 
     oversight on attempts to break the Headwaters Forest 
     agreement by adding more acreage to the forest through a debt 
     for nature swap. I initiated an oversight review of this 
     matter in June, and today I created a task force to further 
     study the issues outlined in the oversight review. A copy of 
     the task force charter is attached. The task force will be 
     chaired by John Doolittle. Republican Members of the task 
     force are listed in the charter, and I have reserved three 
     slots for Democrat Members to be named by Mr. Miller. The 
     task force will operate much like a subcommittee and may hold 
     hearings as needed to examine the issues for the oversight 
     review.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                  Washington, DC, August 14, 2000.
     Hon. George Miller,
     Committee on Resources, Longworth HOB, Washington, DC.
       Dear George: On July 26, 2000, your staff was notified that 
     I was considering establishing a task force to examine the 
     issues and subjects raised in the June 18, 2000, letter that 
     launched an oversight review about matters related to the 
     Headwaters Forest. Our staffs discussed the task force and 
     oversight project prior to the August recess, and my staff 
     requested that you name three Members to the Task Force. To 
     date I have not received your selection of minority members. 
     I intend to proceed with this task force, and will leave 
     three positions open for Members that you select. Should you 
     have any questions, recommendations, or names of Members who 
     wish to serve on the task force, please ask that your staff 
     direct them to me through Mr. Duane Gibson (5-1064). Thank 
     you.
           Sincerely,
                                                        Don Young,
                                                         Chairman.

                                  ____
                                  

                                     Office of Thrift Supervision,


                                   Department of the Treasury,

                                   Washington, DC, August 1, 2000.
     Duane Gibson, Esq.,
     General Counsel, Oversight and Investigations, Committee on 
         Resources, House of Representatives, Washington, DC.
       Dear Mr. Gibson: Set forth below are OTS's responses to 
     your questions, which were e-mailed to Kevin Petrasic on July 
     21, 2000.
       1. ``What is the total budget of OTS for the past five 
     years?''


        Year                                                     Budget
1999.......................................................$154,313,750
1998........................................................147,253,450
1997........................................................144,948,050
1996........................................................148,758,100
1995........................................................170,300,500


       2. ``What is the OTS authorizing statute? Please send a 
     copy.''
       12 USC 1462a, 1464. A copy is attached.
       3. ``How many cases are being pursued by the OTS for the 
     FDIC in each of the last five years?''
       The OTS does not pursue cases for the FDIC. By way of 
     background, the Financial Institutions Reform, Recovery, and 
     Enforcement Act of 1989. Pub. L. 101-73 (August 9, 1989), 
     created the OTS as the primary federal regulator of savings 
     associations and authorized the OTS to pursue administrative 
     enforcement actions against individuals and entities to 
     safeguard the thrift industry, its depositors and the federal 
     deposit insurance funds. 12 U.S.C. 1464 and 1818. One of the 
     remedies available to the OTS and other banking regulators in 
     these administrative enforcement proceedings is to obtain 
     restitution for losses suffered by an insured depository 
     institution. 12 U.S.C. 1818(b)(6). If the OTS succeeds in 
     recovering restitution, it is returned to the institution.
       When a savings association fails, the OTS must appoint the 
     FDIC as receiver for the institution. 12 U.S.C. 1464(d)(2). 
     As the appointed receiver, the FDIC ``steps into the shoes'' 
     of the failed institutions to manage its assets. 12 U.S.C. 
     1821. The OTS would then pay any restitution recovered in its 
     administrative enforcement action to the FDIC as receiver.
       Whether an institution is open or being run by FDIC as 
     receiver, those running the institution may advise OTS of 
     possible violations of law that may warrant action by OTS. As 
     part of its investigation, OTS will obtain information from 
     the institution and then make an independent determination 
     under OTS's statutory authority whether to bring any 
     enforcement action.
       As receiver, FDIC has separate legal authority to pursue 
     private legal actions for recovery of damages on behalf of 
     the institution, its creditors and shareholders. The OTS's 
     statutory authority to pursue enforcement actions is separate 
     from the FDIC's authority as receiver. The federal courts 
     have consistently recognized this distinction between OTS's 
     administrative enforcement authority and the FDIC's authority 
     as receiver to bring suit in federal court. See, e.g., 
     Simpson v. OTS, 29 F.3d 1418, 1423 (9th Cir. 1994), cert. 
     denied, 513 U.S. 1148 (1995); Akin v. OTS, 950 F.2d 1180, 
     1185 (5th Cir. 1992). As in the

[[Page E2517]]

     USAT matter, the courts have held that the two agencies may 
     pursue separate, but concurrent, legal proceedings in 
     furtherance of their separate legal responsibilities. See 
     Resolution Trust Corp. v. Ryan, 801 F.Supp. 1545 (S.D.Miss. 
     1992).
       With this as background, the OTS has issued fifteen orders 
     in enforcement proceedings in the last five years (plus the 
     first half of this year) that resulted in restitution 
     obtained and paid to the FDIC as receiver, as follows:

------------------------------------------------------------------------
               Year                      Institution          Amount
------------------------------------------------------------------------
2000 (to date)....................  One order...........      $3,169,115
1999..............................  Three orders........       1,197,000
1998..............................  Three orders........       1,319,000
1997..............................  No orders...........
1996..............................  Four orders.........      29,050,000
1995..............................  Four orders.........       3,600,000
------------------------------------------------------------------------

       4. ``How many independent of the FDIC are being pursued?''
       As explained above, all OTS enforcement actions are 
     independent of the half of this year) by the OTS, either 
     through administrative proceedings or consent settlements, 
     are:


                                           Number of Enforcement Orders
        Year
2000 (to date)...................................................... 37
1999................................................................ 42
1998................................................................ 44
1997................................................................ 80
1996................................................................ 92
1995................................................................132


       5. ``How many lawyers and non-lawyers are working on the 
     OTS/FDIC case against USAT?''
       There are not OTS lawyers or non-lawyers working on the 
     FDIC USAT case. It is an entirely separate case pending in 
     federal court in Houston, TX, in which the OTS is not a 
     party. Maxxam Corporation filed a motion to add OTS as an 
     involuntarily plaintiff in that action, but Maxxam's motion 
     was denied by the federal court in 1997.
       During the trial of the OTS's USAT administrative case, OTS 
     had five lawyers assigned full-time to the case. They were 
     assisted by between two and six paralegals at different 
     times. The respondents were represented by more than 20 
     attorneys who appeared in the case of their behalf. These 
     attorneys were assisted by attorneys, paralegals and support 
     staff from the four major law firms representing respondents.
       6. ``How much has the FDIC reimbursed the OTS for that work 
     broken down by year?''
       FDIC has reimbursed the OTS for legal fees and out-of-
     pocket expenses in the USAT administrative action as follows:


        Year                                                     Amount
1995...........................................................$529,452
1996............................................................455,895
1997............................................................435,867
1998............................................................663,403
1999............................................................857,182
2000.............................................................61,026
                                                             __________
                                                             
    Total.....................................................3,002,825


       To date, the OTS has recovered $10,876,426.98 in 
     restitution in the USAT administrative action, which has been 
     paid to the FDIC, through settlements with United Financial 
     Group, Inc., the holding company for USAT, and with five 
     individual former officers and directors of USAT.
       7. ``How has the FDIC been involved with the OTS on the 
     USAT case?''
       The FDIC is not a party in the USAT administrative action 
     brought by OTS. The FDIC has shared information and documents 
     that the OTS has requested to prepare its case, and the two 
     agencies have consulted on legal theories and other matters.
       The respondents in the case have executed a joint defense 
     agreement pursuant to which they shared information with each 
     other, coordinated discovery and motions, presented joint 
     briefs and memoranda of law and shared counsel. In addition, 
     Maxxam Corporation has agreed to pay legal expenses on behalf 
     of several of the respondents.
       8. ``Where in terms of dollar amount does the USAT case 
     fall compared to other cases?''
       OTS seeks $821,319,405 in restitution in the case, which is 
     the largest dollar amount sought by OTS in a litigated case. 
     The next largest case involved Lincoln Savings and Loan 
     Association, Irvine, CA case, where the OTS obtained $600 
     million, through orders and settlements against several 
     respondents, to be paid to the FDIC as receiver for the 
     failed institution. In numerous other cases, including San 
     Jacinto Savings, Bellaire, TX, Columbia Savings, Beverly 
     Hills, CA, and General Bank, Miami, FL, OTS has obtained more 
     than $500 million through orders and settlements to be paid 
     to the FDIC.
       9. ``How is the $1.6 billion figure derived for the USAT 
     case?''
       This is not the amount sought by OTS in the case. The $1.6 
     billion figure is the cost to the federal deposit insurance 
     fund from paying of depositors due to the collapse of USAT.
           Sincerely yours,
                                                  Carolyn J. Buck,
                                                    Chief Counsel.
       Attachment.

                                  ____
                                  

                                                   Federal Deposit


                                        Insurance Corporation,

                                     Washington, DC, July 7, 2000.
     Hon. Don Young,
     Chairman, Committee on Resources, House of Representatives, 
         Washington, DC.
       Dear Chairman Young: As requested in your June 20, 2000 
     letter as the Chairman of the House Committee on Resources, 
     and the June 20, 2000 subpoena by the Committee on Resources, 
     we are providing the Committee with the enclosed material. It 
     is my understanding that pursuant to conversations between 
     Committee staff and staff of the Federal Deposit Insurance 
     Corporation, the Committee has requested that two copies of 
     the documents be produced to the majority, and one to the 
     minority. We are enclosing two copies of responsive documents 
     with this letter, and will provide an additional copy 
     directly to Ranking Minority Member George Miller.
       An index to the documents and privilege log is also 
     enclosed. We are not withholding any responsive document, 
     regardless of whether it is privileged. Where privileged 
     documents are provided, they are so identified and marked, 
     and the applicable privileges are identified in the 
     accompanying index and log.
       In delivering these records, it is our intention to 
     preserve any and all privileges or exemptions from disclosure 
     under the Freedom of Information Act or other laws, rules and 
     regulations for those documents marked as privileged should 
     they be requested by any person other than the Congress of 
     the United States acting in its official capacity. We 
     appreciate the efforts of the Committee and its staff to 
     maintain the strict confidentiality of these documents.
           Sincerely yours,
                                                Patricia M. Black,
                                 Counsel to the Inspector General.

                                  ____
                                  

  LOG OF PRIVILEGED DOCUMENTS PRODUCTION TO THE COMMITTEE ON RESOURCES, U.S. HOUSE OF REPRESENTATIVES, JULY 7,
                                                      2000
----------------------------------------------------------------------------------------------------------------
 Bates numbered
     pages                Date of documents               Description of documents             Privilege
----------------------------------------------------------------------------------------------------------------
  000000-000018  October 13, 1998...................  Hurwitz Motion to Remove         Deliberative Process.
                                                       Confidentiality Designation of
                                                       FDIC Board Meeting Materials
                                                       (Under Seal).
  000019-000034  ...................................  Federal Deposit Insurance        .........................
                                                       Corporation's Opposition to
                                                       Hurwitz's Motion to Remove
                                                       Confidentiality Designation
  000035-000053  May 11, 1998.......................  Hurwitz's Request for            .........................
                                                       Disposition of Motions
                                                       Affecting Disclosure of the
                                                       ATS Memo
  000054-000070  May 8, 1998........................  Hopkins & Sutter Letter Re:      .........................
                                                       FDIC V. Hurwitz
  000071-000074  November 15, 1995..................  Clements, O'Neill, Peirce, &     .........................
                                                       Nickens Letter Re: Federal
                                                       Deposit Insurance Corporation,
                                                       as manager of FSLIC Resolution
                                                       v. Charles E. Hurwitz, Civil
                                                       Action No. H-95-3956, United
                                                       States District Court for the
                                                       Southern District of Texas,
                                                       Houston Divison
  000075-000097  November 16, 1995..................  FDIC as a manager of the FSLIC   .........................
                                                       Resolution Fund v. Charles E.
                                                       Hurwitz--Hearing Transcript
  000098-000104  October 10, 1997...................  FDIC v. Charles E. Hurwitz--     .........................
                                                       Order to Produce
  000105-000152  September 30, 1997.................  Hurwitz's Memorandum in Support  .........................
                                                       of His Motions For Sanctions
                                                       and Dismissal
  000153-000185  October 19, 1997...................  FDIC's Memorandum in Response    .........................
                                                       to Hurwitz's Motion for
                                                       Sanctions and Dismissal
  000186-000189  Cross-Walk of Issues Raised By       Attorney Work Product
                  Congressman DeLay Regarding USAT     Deliberative Process.
                  Litigation To Objectives Outlined
                  in OCRE's Evaluation Proposal.
  000190-000196  April 19, 1999.....................  Memo from Schulz to Kroener,     Attorney Client Privilege
                                                       Subject: OIG Investigation of    Attorney Work Product
                                                       the Hurwitz Case.                Deliberative Process
  000197-000200  February 3, 1999...................  Letter to Tanoue and Gianni re:  .........................
                                                       Hurwitz from Congressman DeLay.
  000201-000215  March 10, 1999.....................  Executive Summary--              Attorney Client Privilege
                                                       Authorization of Expenditures.   Attorney Work Product
                                                                                        Deliberative Process.
  000216-000219  March 2, 1999......................  Letter from Chairman Tanoue and  .........................
                                                       Response to an Inquiry from
                                                       the Honorable Tom DeLay
  000220-000222  April 8, 1999......................  Draft Letter to Congressman      Deliberative Process.
                                                       DeLay from Gianni re: Hurwitz.
  000223-000258  ...................................  DeLay Allegation Spreadsheet     Attorney Client Privilege
                                                       (with notations).                Attorney Work Product
                                                                                        Deliberative Process.
  000259-000268  May 5, 1999........................  Memorandum--Motions in the       Attorney Client Privilege
                                                       Hurwitz litigation raising       Attorney Work Product
                                                       issues that the Office of        Deliberative Process.
                                                       Inspector General proposes to
                                                       investigate (Under Seal).
  000269-000271  ...................................  Hurwitz Case Summary...........  Attorney Client Privilege
                                                                                        Attorney Work Product.
  000272-000276  ...................................  Preliminary Comparison of Key    Attorney Client Privilege
                                                       Provisions in FDIC/PLS           Attorney Work Product
                                                       Guidelines With the July 27,     Deliberative Process.
                                                       1995 Authority to Institute
                                                       PLS Memo Prepared for the USAT
                                                       Litigation.
  000277-000284  ...................................  Evaluation Action Plan.........  Attorney Client Privilege
                                                                                        Attorney Work Product
                                                                                        Deliberative Process.
  000285-000286  February 23, 1999..................  FY2000 FDIC Inspector General    .........................
                                                       VA-HUD Appropriations
                                                       Subcommittee The Honorable Tom
                                                       DeLay Questions for The Record

[[Page E2518]]

 
  000287-000291  March 25-26, 1999..................  Record of March 25, 1999         Attorney Client Privilege
                                                       Meeting with OIG Counsel         Attorney Work Product
                                                       Regarding Modified Approach to   Deliberative Process.
                                                       United Savings Association of
                                                       Texas (USAT) Evaluation.
  000292-000295  ...................................  Summary of Review of Issues      Attorney Client Privilege
                                                       Raised by Congressman DeLay.     Attorney Work Product
                                                                                        Deliberative Process.
  000296-000299  ...................................  Inventory of Legal Documents     Attorney Work Product
                                                       Received 2/24/99 from Bob        Deliberative Process.
                                                       Dehenzel.
  000300-000309  May 5, 1999........................  Memorandum to File from          Attorney Work Product.
                                                       Dehenzel re: Motions in the
                                                       Hurwitz litigation raising
                                                       issues that the Office of
                                                       Inspector General proposes to
                                                       investigate.
  000310-000317  Undated Draft......................  Action Plan....................  Deliberative Process.
  000318-000329  ...................................  Congressman DeLay Allegation     .........................
                                                       Spreadsheet (without
                                                       notations)
  000330-000333  ...................................  Evaluation Proposal I..........  Attorney Client Privilege
                                                                                        Attorney Work Product
                                                                                        Deliberative Process.
  000334-000341  ...................................  Evaluation Proposal II.........  Attorney Client Privilege
                                                                                        Attorney Work Product
                                                                                        Deliberative Process.
  000342-000345  February 3, 1999...................  Letter to Tanoue and Gianni re:  .........................
                                                       Hurwitz from Congressman DeLay
  000346-000347  September 30, 1998.................  Letter to Congressman Bentsen    .........................
                                                       from Tanoue
  000348-000349  October 18, 1996...................  Letter to Congressman Gonzalez   .........................
                                                       from Tanoue
  000350-000351  ...................................  Auditor's Plan.................  Deliberative Process.
  000352-000365  Various............................  News Articles                    .........................
  000366-000384  August 1, 1995.....................  Minutes of the Board of          Attorney Client Privilege
                                                       Directors.                       Attorney Work Product
                                                                                        Deliberative Process.
  000385-000389  June 1998..........................  Case Review Summary............  Attorney Client Privilege
                                                                                        Attorney Work Product.
  000390-000391  ...................................  4th Quarter 98 Top Ten.........  Attorney Client Privilege
                                                                                        Attorney Work Product.
  000392-000394  June 17, 1997......................  Memorandum to David Einstein     Attorney Work Product.
                                                       from Jeffrey Williams re:
                                                       United Savings Association of
                                                       Texas, FDIC v. Hurwitz and
                                                       Related Matters.
  000395-000400  ...................................  FDIC Briefing Outline..........  Attorney Client Privilege
                                                                                        Attorney Work Product.
  000401-000411  February 4, 1994...................  Letter to Carolyn Lieberman      Attorney Work Product
                                                       from Jack Smith.                 Deliberative Process.
  000412-000425  March 10, 1999.....................  Executive Summary--              Attorney Client Privilege
                                                       Authorization of Expenditures    Attorney Work Product
                                                       United Savings Association of    Deliberative Process.
                                                       Texas Houston, Texas, FIN#1815.
  000426-000433  September 12, 1995.................  Letter to Chairman Helfer from   Attorney Client Privilege
                                                       Kroener.                         Attorney Work Product
                                                                                        Deliberative Process.
  000434-000437  October 20, 1995...................  Gore Meeting Draft Discussion    Attorney Work Product.
                                                       Points.
         000438  October 20, 1995...................  Headwater Meeting Attendees      .........................
         000439  October 25, 1995...................  Headwaters Forest Meeting        Deliberative Process.
                                                       October 26.
  000440-000444  October 25, 1995...................  Headwaters Forest Meeting        Deliberative Process.
                                                       October 26.
  000445-000446  October 26, 1995...................  USAT Meeting Attendee List       .........................
  000447-000474  November 7, 1995...................  Memorandum from Jeffrey          Deliberative Process.
                                                       Williams, Subject: USAT/
                                                       Charles Hurwitz.
         000475  November 28, 1995..................  Attendee List                    .........................
         000476  ...................................  Attendee List                    .........................
         000477  February 9, 1998...................  Memorandum to Jeff Williams      .........................
                                                       from John Garamendi Subject:
                                                       Headwaters
  000478-000481  October 9, 1998....................  PLS Top 10 Report..............  Attorney Work Product.
  000482-000483  January 19, 1999...................  PLS Top Ten....................  Attorney Work Product.
  000484-000486  ...................................  Discussion Points Concerning     Attorney Work Product
                                                       the Qui Tam Action.              Deliberative Process.
         000487  ...................................  Essential Points...............  Attorney Work Product.
  000488-000489  June 28, 2000......................  Assignment Status Report.......  Privacy Act Material.
  000490-000491  June 21, 2000......................  E-mail re: Congressional         .........................
                                                       Document Request
  000492-000493  June 17, 1999......................  Record of Meeting with           .........................
                                                       Congressman DeLay on FDIC's
                                                       Litigation Against Charles
                                                       Hurwitz
  000494-000495  May 4, 1999........................  E-mail from Pat Black/Steve      Attorney Client
                                                       Beard re: Evaluation 99-003E.    Privilege.
          00496  March 31, 1999.....................  E-mail from Beard re:            .........................
                                                       Additional Documents from
                                                       Legal
         000497  ...................................  Draft Inventory of other USAT    .........................
                                                       documentation not received on
                                                       2/24/99, 3/4/99 and 3/23/99
                                                       from the FDIC Legal Division
                                                       as of 3/24/99
  000498-000505  ...................................  Draft Inventory of               Attorney Client Privilege
                                                       Documentation Received 2/24/     Attorney Work Product
                                                       99, 3/4/99, and 3/23/99 from     Deliberative Process.
                                                       FDIC Legal Division: 3
                                                       Accordion Files. As of 3/24/99.
  000506-000513  ...................................  Evaluation Action Plan.........  Attorney Work Product
                                                                                        Deliberative Process.
  000514-000518  March 29, 1999.....................  Draft USAT/Hurwitz Timeline      .........................
  000519-000523  March 25-26, 1999..................  Record of Meeting with OIG       Attorney Client Privilege
                                                       Counsel Regarding Modified       Attorney Work Product
                                                       Approach to USAT Evaluation.     Deliberative Process.
  000524-000530  ...................................  Evaluation Action Plan.........  Deliberative Process.
  000531-000538  ...................................  Draft Inventory of               Attorney Client Privilege
                                                       Documentation Received 2/24/     Attorney Work Product
                                                       99, 3/4/99, and 3/23/99 from     Deliberative Process.
                                                       Bob DeHenzel, Counsel, Legal
                                                       Division: 3 Accordion Files.
                                                       As of 3/24/99.
  000539-000542  ...................................  Evaluation Proposal............  Deliberative Process.
  000543-000544  March 24, 1999.....................  Draft letter to Congressman      Deliberative Process.
                                                       Delay from Gianni (unsigned).
         000545  March 23, 1999.....................  E-mail Additional documents      .........................
                                                       from Legal
  000546-000547  ...................................  Letters to the Editors the       .........................
                                                       Washington Post
  000548-000551  ...................................  Evaluation Proposal............  Deliberative Process.
  000552-000553  ...................................  E-mail from Tom Ritz--USAT       Deliberative Process.
                                                       Documents.
  000554-000559  ...................................  Draft Inventory of               Deliberative Process.
                                                       Documentation Received 2/24/99
                                                       and 3/4/99 form Bob DeHenzel,
                                                       Counsel, Legal Division: 2
                                                       Accordion Files. As of 3/18/99.
  000560-000562  March 17, 1999.....................  Draft USAT/Hurwitz Timeline      .........................
  000563-000566  ...................................  Evaluation Proposal............  Deliberative Process.
  000567-000569  March 16, 1999.....................  E-mail from Beard--Subject: My   Deliberative Process.
                                                       comments on the proposal.
  000570-000572  ...................................  USAT 99-003 Evaluation Plan....  Deliberative Process.
  000573-000588  Various............................  Various E-mails................  Deliberative Process.
  000589-000592  ...................................  Evaluation Proposal............  Deliberative Process.
  000593-000606  Various............................  Various E-mails................  .........................
----------------------------------------------------------------------------------------------------------------

   

                                                   Federal Deposit


                                        Insurance Corporation,

                                     Washington, DC, July 7, 2000.
     Hon. Don Young,
     Chairman, Committee on Resources, House of Representatives, 
         Washington, DC.
       Dear Mr. Chairman: This letter is in response to the 
     subpoena duces tecum received by the Federal Deposit 
     Insurance Corporation on July 6, 2000 seeking production of 
     copies of documents regarding the Headwaters Forest, a 
     possible ``debt for nature swap'' and pending litigation 
     regarding the FDIC and Mr. Charles E. Hurwitz arising out of 
     the failure of United Savings Association of Texas (USAT).
       This document production should satisfy our obligations 
     under the subpoena. The enclosed documents include sensitive, 
     highly confidential material that is covered by attorney 
     client and/or attorney work product privileges in the ongoing 
     litigation against Mr. Hurwitz. In many cases, the production 
     includes documents that Mr. Hurwitz and his representatives 
     are not entitled to review through the court proceedings. The 
     FDIC does not waive any privileges belonging to the FDIC or 
     any other agency as a result of providing these documents to 
     the Committee pursuant to the subpoena.
       As we stated in our prior correspondence, the FDIC would 
     strongly object to the dissemination of privileged and 
     confidential documents to parties other than Committee 
     Members and staff. We have identified the documents 
     containing confidential information with a stamp bearing the 
     designation ``CONFIDENTIAL.'' The failure of USAT cost the 
     American taxpayer approximately $1.6 billion and the 
     inappropriate release of these documents could significantly 
     harm the FDIC's ability to litigate this matter and reduce 
     damages otherwise recoverable to reimburse taxpayers for the 
     losses arising out of this failure.
       We are producing two sets of documents to the Committee 
     under the subpoena that are especially sensitive. These 
     materials are segregated from the rest of the production. The 
     first set includes documents that state the FDIC's internal 
     valuation of the case for settlement purposes. Because 
     disclosure of this information would be extremely harmful to 
     the FDIC's litigation and settlement position, we are 
     providing the full document for the Committee's review, but 
     have redacted the actual valuation. This will allow the 
     Committee to review any material in the document regarding 
     the stated subjects of the investigation while ensuring 
     against an inadvertent release of this highly sensitive 
     information. If the Committee has any concerns about the 
     redactions, we will permit the Committee staff to inspect the 
     unredacted versions in our offices.
       The second set of documents includes materials that have 
     been placed under court seal in the litigation, or are 
     naturally implicated by the Court's order. These documents 
     are placed in a separately marked box.
       Finally, there are some oversized maps, an audio tape of 
     music from an environmental group and two tapes of two voice 
     mail messages left by Mr. Hurwitz's counsel that we have been 
     unable to duplicate within the timeframe of the subpoena 
     because of their

[[Page E2519]]

     unique nature. These materials are available to the Committee 
     for Inspection at our offices or we can make arrangements to 
     have them copied if that is the Committee's preference.
       If you have any questions regarding this production of 
     documents, please do not hesitate to contact Eric Spitler of 
     the FDIC's Office of Legislative Affairs.
           Sincerely,
                                          William F. Kroener, III,
                                                  General Counsel.

                                  ____
                                  

                                                   Federal Deposit


                                        Insurance Corporation,

                                    Washington, DC, June 29, 2000.
     Hon. Don Young,
     Chairman, Committee on Resources, House of Representatives, 
         Washington, DC.
       Dear Mr. Chairman: This letter is in further response to 
     your June 16, 2000 request for copies of documents regarding 
     the Headwaters Forest, a possible ``debt for nature swap'' 
     and pending litigation between the Federal Deposit Insurance 
     Corporation and Mr. Charles E. Hurwitz arising out of the 
     failure of United Savings Association of Texas (USAT).
       Your staff has requested that we detail our efforts to 
     identify responsive documents. Upon receipt of the 
     Committee's request, the Senior Deputy General Counsel sent a 
     copy of the request by e-mail to all current employees who 
     have participated in the litigation and might have responsive 
     documents. Copies of the Committee's requests also were 
     provided to the FDIC's Executive Offices and to Division and 
     Office Directors who were asked to forward the e-mail to any 
     employees they believed might have responsive documents in 
     their possession. Employees were asked to respond to the e-
     mail within 24 hours and to provide copies of any responsive 
     documents to the Legal Division within 48 hours. Any 
     employees who did not respond to the initial e-mail were 
     contacted directly and directed to provide documents. The 
     Legal Division has been reviewing the documents for 
     responsiveness and identifying any issues regarding attorney-
     client and attorney work product that might have an impact on 
     the FDIC's ongoing litigation.
       On Friday, June 23, 2000, the FDIC made an initial 
     production of responsive non-privileged documents to the 
     Committee. The FDIC is continuing to search for material 
     responsive to the Committee's request and is today making a 
     second production of responsive non-privileged documents. As 
     Chairman Tanoue stated in her June 23 letter to the 
     Committee, the FDIC's search has identified documents that 
     are covered by attorney-client and/or attorney work product 
     privileges in the current ongoing litigation with Mr. 
     Hurwitz. Following our expression of concern that voluntarily 
     responding to the Committee's request for privileged 
     documents could significantly harm our legal position in the 
     ongoing litigation, Mr. Duane Gibson of your staff indicated 
     that the Committee will provide a subpoena for these 
     documents.
       The FDIC is deeply concerned that the dissemination of 
     privileged, confidential and sensitive material to parties 
     outside of the Corporation could significantly injure our 
     ability to litigate this matter and reduce damages otherwise 
     recoverable to reimburse taxpayers for losses arising out of 
     the failure of United Savings Association of Texas. It is our 
     understanding that the documents requested by the Committee 
     are for the official business of the Committee, but that 
     there is no formal protocol that governs the dissemination of 
     requested material. The FDIC would strongly object to the 
     dissemination of privileged and confidential documents to 
     parties other than Committee Members and staff.
       Finally, the enclosed material includes documents regarding 
     settlement discussions in the ongoing litigation. Although 
     this material is considered sensitive and confidential, 
     counsel for Mr. Hurwitz and Maxxam were contacted and did not 
     object to the release of this material in response to the 
     Committee's request. In addition, pursuant to instructions 
     from Mr. Gibson, the enclosed production includes a 
     representative sample of the postcards, petitions and letters 
     received by the FDIC regarding this matter. The FDIC 
     generally did not respond to these types of communications. 
     Responses, if any, to correspondence from outside parties 
     regarding this litigation, including responses to Members of 
     Congress, are being provided in these voluntary productions. 
     In addition, with regard to responsive documents that may be 
     in the possession of the FDIC Office of Inspector General 
     (OIG), we have shared the Committee's request with the OIG 
     and it is our understanding that the OIG will communicate 
     with your staff directly regarding any responsive OIG 
     documents in their possession.
       If you have any questions regarding this production of 
     documents, please do not hesitate to contact Eric Spitler of 
     the FDIC's Office of Legislative Affairs.
           Sincerely,
                                          William F. Kroener, III,
                                                  General Counsel.

                                  ____
                                  

                                     Office of Thrift Supervision,


                                   Department of the Treasury,

                                    Washington, DC, June 23, 2000.
     Hon. Don Young,
     Chairman, Committee on Resources, House of Representatives, 
         Washington, DC.
       Dear Chairman Young: This is in response to your June 16, 
     2000 information request concerning allegations of a ``debt 
     for nature'' swap involving the Headwaters Forest. We are 
     engaged in a search for the documents requested and with this 
     letter are delivering copies of a portion of the responsive 
     documents to your office. Pursuant to agreement with Mr. 
     Duane Gibson of your staff, we are providing a sample of the 
     postcards and letters from the public; the full complement is 
     available for your review, if you desire.
       As we have explained to Mr. Gibson, the Office of Thrift 
     Supervision (OTS) is in the midst of a formal adjudicatory 
     enforcement proceeding pursuant to 12 U.S.C. 1818 against Mr. 
     Charles Hurwitz and Maxxam Corporation concerning their 
     involvement with United Savings Association of Texas (USAT). 
     A lengthy administrative trial was held before an 
     administrative law judge (ALJ). The ALJ is now reviewing the 
     evidence presented and post-trial briefs to prepare a 
     recommended decision for the Director of OTS. After the ALJ 
     submits his recommended decision to the Director, the parties 
     will have the opportunity to file briefs with the Director 
     concerning her final decision in the matter. If the Director 
     decides to order an enforcement action against Mr. Hurwitz or 
     Maxxam, they have the right to file an appeal with the U.S. 
     Court of Appeals.
       Because an enforcement proceeding is still pending before 
     the agency, we have significant concerns about protecting the 
     confidentiality of certain documents which are responsive to 
     your request. These documents fall into two categories: 1) 
     material relating to settlement discussions between Mr. 
     Hurwitz and Maxxam, and 2) internal OTS memoranda about OTS' 
     claims in this proceeding. As to the first category, counsel 
     for Mr. Hurwitz and Maxxam and OTS signed a confidentiality 
     agreement concerning settlement discussions. We have 
     requested of their counsel, and have received, a non-
     objection to releasing documents about those discussions to 
     the Committee.
       Because we expressed reservations about our ability to 
     protect the privileged nature of these documents by 
     voluntarily responding to the Committee's request for 
     documents, Mr. Gibson indicated that we can expect to receive 
     a subpoena.
       We are concerned that dissemination of confidential and 
     sensitive documents outside the agency might compromise our 
     pending adjudicatory process. For that reason we asked that a 
     document handling protocol be in place to maintain their 
     confidentiality by limiting access to Members of Congress and 
     their staff. Mr. Gibson advised us that the Committee does 
     not have a general document protocol but that all record 
     requests from the Committee are for the official business of 
     the Committee. For the record, we note our objection to any 
     publication or release of these documents beyond Members of 
     the Committee and the staff.
       The second category of documents involves confidential 
     internal OTS memoranda concerning the bases for its 
     investigation and claims that resulted in the adjudicatory 
     proceeding. As we explained to Mr. Gibson, these are 
     extremely sensitive internal communications and, for the time 
     being, we are near agreement on another means of conveying 
     any possibly relevant information that may be in those 
     documents.
       You had indicated in your letter that the Committee might 
     wish to interview OTS employees. If that is necessary, we ask 
     that you contact our Office of Congressional Affairs to 
     arrange the interviews. If you have any questions, please 
     contact Kevin Petrasic, Director of Congressional Affairs at 
     (202) 906-6452.
           Sincerely,
                                                  Carolyn J. Buck.
     cc: Rep. George Miller

                                  ____
                                  

                                                   Federal Deposit


                                        Insurance Corporation,

                                    Washington, DC, June 23, 2000.
     Hon. Don Young,
     Chairman, Committee on Resources, House of Representatives, 
         Washington, DC.
       Dear Mr. Chairman: This letter is in further response to 
     your June 16, 2000, request for copies of documents regarding 
     the Headwaters Forest, a possible ``debt for nature swap,'' 
     and pending litigation between the Federal Deposit Insurance 
     Corporation and Mr. Charles E. Hurwitz arising out of the 
     failure of United Savings Association of Texas.
       Since receiving the Committee's request for documents, the 
     FDIC has initiated an aggressive search for responsive 
     documents. With this letter, I am transmitting the FDIC's 
     first submission of documents responsive to the Committee's 
     June 16, 2000, request. As we stated in our letter of June 
     20, we anticipate that additional documents will be 
     identified during the week of June 26 when we have the 
     opportunity to review the files of key individuals involved 
     with this matter who have been on leave since receipt of the 
     Committee's request, including the General Counsel. We will 
     promptly copy and transmit to the Committee responsive 
     documents that are identified in this continuing search. In 
     addition, we have identified documents that are covered by 
     attorney-client and/or attorney work product privileges. 
     Therefore, the FDIC respectfully requests a subpoena from the 
     Committee for the production of these documents in order to 
     protect our privileges in the current litigation.
       In addition to the documents included in this production, 
     the FDIC has in its possession several boxes of postcards, 
     letters, and petitions from sources outside the FDIC 
     regarding subjects identified in the Committee's request. 
     While the FDIC did not respond to these incoming documents 
     and they

[[Page E2520]]

     do not contain any FDIC analysis or input, we believe that 
     they are covered by the Committee's request. Because copying 
     these voluminous documents will involve considerable time and 
     expense, we would propose to make them available immediately 
     to the Committee for inspection at our offices.
       If you have any question regarding this production of 
     documents, please do not hesitate to contact Eric Spitler or 
     our Office of Legislative Affairs at (202) 898-3837.
           Sincerely,
                                                     Donna Tanoue,
                                                         Chairman.
       Enclosures.

     cc: Honorable George Miller.

                                  ____
                                  

                                                   Federal Deposit


                                        Insurance Corporation,

                                    Washington, DC, June 20, 2000.
     Hon. Don Young,
     Chairman, Committee on Resources, House of Representatives, 
         Washington, DC.
       Dear Mr. Chairman: Thank you for your recent letter 
     requesting certain documents regarding the Federal Deposit 
     Insurance Corporation's pending litigation against Mr. 
     Charles E. Hurwitz. As you know, the FDIC's suit against Mr. 
     Hurwitz arises out of the 1988 failure of United Savings 
     Association of Texas (USAT), a savings and loan failure that 
     cost the American taxpayer more than $1.6 billion.
       Although the FDIC rejects the Committee's allegations that 
     the basis for the suit against Mr. Hurwitz is an attempt to 
     obtain additional parcels of the Headwaters Forest, the FDIC 
     intends to cooperate with the Committee's investigation. The 
     Committee has made a broad request for documents related to 
     this matter and asked that they be produced by Friday, June 
     23, 2000. The FDIC is dedicating significant resources to the 
     Committee's request and we expect to be able to produce the 
     bulk of the documents on that date. However, it is 
     anticipated that some documents will not be identified by the 
     deadline. For example, a few key staff involved with this 
     matter have been on leave since the request was received and 
     a search of their files cannot be completed until they return 
     the week of June 26. With regard to any documents that are 
     not produced by June 23, 2000, the FDIC will provide 
     documents to the Committee as quickly as they can be 
     identified and copied.
       With regard to prospective interviews of FDIC employees, we 
     request that such interviews be arranged through the FDIC's 
     Office of Legislative Affairs. If you or your staff have any 
     questions regarding this matter, please contact Eric Spitler 
     of the FDIC's Office of Legislative Affairs (202) 898-3837.
           Sincerely,
                                                     Donna Tanoue,
                                                         Chairman.

                                  ____
                                  

     To: Carolyn Buck
     This may help you, Carolyn. Call if you have any questions. 
         Duane.
       We are concerned that dissemination of certain sensitive 
     documents outside the agency might compromise our pending 
     adjudicatory process. For that reason we ask that you 
     maintain the confidentiality of sensitive documents we 
     identify by limiting access to Members of the Committee and 
     their staff. Mr. Gibson has advised us that the Committee 
     does not have a general document protocol, but that all 
     record requests from the Committee are for the official 
     business of the Committee. The information in documents is 
     generally used for informing members of the Committee. The 
     persons with general access to the sensitive documents are 
     staff working on the Committee oversight project and Members 
     of Committee. Mr. Gibson also said that at some point the 
     documents may become public if used, for example, in a 
     memorandum to the Chairman or in hearings. Mr. Gibson also 
     indicated that if the Chairman receives any prior 
     notification of why an agency views a document as sensitive, 
     that the Chairman gives it substantial weight and factors it 
     into decision-making on release or excerpted release of the 
     sensitive document.

                                  ____
                                  

                                         House of Representatives,


                                       Committee on Resources,

                                    Washington, DC, June 16, 2000.
     Hon. Donna A. Tanoue,
     Chairman, Federal Deposit Insurance Corporation, Washington, 
         DC.
     Hon. Ellen Seidman,
     Director, Office of Thrift Supervision, Washington, DC.


              VIA FAX FOR PERSONAL ATTENTION OF ADDRESSEES

       Dear Chairman Tanoue and Director Seidman: The legislative, 
     oversight, and investigative responsibilities under Rule X 
     and Rule XI of the Rules of the United States House of 
     Representatives, Rule 6(b) of the Rules for the Committee on 
     Resources (the Committee), 106th Congress, and Article I and 
     Article IV of the United States Constitution, require that 
     the Committee on Resources oversee and review the laws, 
     policies, practices, and operation of the Department of the 
     Interior (the Department), the public domain lands and 
     resources managed by the Department, and any other entity 
     that relates to or takes action to influence departments or 
     matters and laws within the Committee's jurisdiction under 
     Rule X(l). This jurisdiction extends to Title V of P.L. 105-
     83 concerning the legislation that authorized the acquisition 
     of the Headwaters Forest (land that is now managed by the 
     Bureau of Land Management) from Pacific Lumber Company. It 
     extends to any future additions of related parcels of the 
     Headwaters Forest from Pacific Lumber Company, including 
     additions through ``debt for nature.'' Members of this 
     Committee, including me, drafted and negotiated this law and 
     approved of its inclusion in the Department of Interior and 
     Related Agencies Appropriations Act, 1998.
       Oversight Matters Under Review. I have initiated an 
     oversight review of the Federal Deposit Insurance 
     Corporation's (FDIC) and the Office of Thrift Supervision's 
     (OTS) advancement of claims against private parties to 
     ultimately obtain additional parcels of the Headwaters Forest 
     owned by the Pacific Lumber Company. This advancement runs 
     contrary to the Headwaters acquisition statute referenced 
     above, contrary to FDIC's mission to oversee the nation's 
     financial system, contrary to the interests of the federal 
     department under the jurisdiction of my committee that would 
     manage such additional Headwaters holdings. The advancement 
     may be in coordination with militant elements of the extreme 
     environmental community. The advancement is being undertaken 
     via a 1995 civil suit (and any subsequent OTS administrative 
     action) filed by the FDIC in the United States District Court 
     for the Southern District of Texas against Mr. Charles E. 
     Hurwitz in connection with the 1988 failure of the United 
     Savings Association of Texas (USAT). The oversight review 
     includes these subjects.
       I am aware that the FDIC conducted a seven-year 
     investigation of USAT's failure prior to the filing of the 
     suit. I review the FDIC's conclusion that claims against Mr. 
     Hurwitz were unwarranted and understand that it issued a 
     report finding ``* * * no direct evidence of insider trading, 
     stock manipulation or theft of corporate opportunity by the 
     officers and directors of USAT.'' The report also said that: 
     ``* * * the directors and senior management found themselves 
     trying to keep the institution afloat and play an entirely 
     new ball game at the same time. While the profit taking 
     strategy is established, the directors' motivation was 
     maintenance of the institution in compliance with the 
     capitalization requirements and not self gain or violation of 
     their duty of loyalty * * * The preliminary conclusion from 
     the initial investigation as to officer's, director's and 
     other professionals' liability was that there did not appear 
     to be any intentional fraud, gross negligence, or patterns of 
     self-dealing.''
       The Federal District Court Judge in the FDIC v. Hurwitz 
     case required the FDIC to produce its authority to sue 
     (``ATS'') memorandum. In analyzing the probability of 
     success, the ATS memorandum concluded that the suit against 
     Mr. Hurwitz was unlikely to survive summary judgment and, 
     even if it did, would have only a ``marginal-at-best'' chance 
     of succeeding on its merits. As noted above, the FDIC's 
     outside counsel agreed with this analysis and its 
     conclusions. Nevertheless, in violation of the FDIC's own 
     internal policy guidelines governing the initiation of 
     litigation, the FDIC ultimately decided to file suit.
       I find particularly disturbing the fact that the ATS 
     memorandum specifically references what appears to be the 
     only possible motive behind the FDIC's decision to bring this 
     suit. The ATS memorandum acknowledges that Mr. Hurwitz is the 
     Chairman, Chief Executive Officer, and indirectly the largest 
     stockholder of MAXXAM Inc., a publicly held company, which 
     owns The Pacific Lumber Company (``Pacific Lumber''). Pacific 
     Lumber owned, among other things, an approximately 5,000 
     acre tract of old growth redwood forest in northern 
     California commonly referred to as the ``Headwaters 
     Forest.'' Beginning in 1994, private sector environmental 
     activists began to lobby the Congress and the 
     Administration furiously to ensure that as much of the 
     Headwaters Forest as possible, if not all of it, remain 
     unharvested by the company.
       Environmental activists--predominantly Earth First!--also 
     began an extensive campaign to use the FDIC and the Office of 
     Thrift Supervision (OTS) and to employ their litigation 
     powers to create a threat of liability that would force 
     MAXXAM to surrender its ownership of the Headwaters Forest in 
     exchange for dismissal of the USAT claims. Such a swap would 
     apparently, in the eyes of environmental advocates and their 
     supporters, enable public acquisition of the Headwaters 
     Forest and other surrounding lands without having to buy them 
     for market value from Pacific Lumber or MAXXAM. This concept 
     came to be known as a ``debt-for-nature'' swap (even though 
     the alleged ``debt'' was merely the threat of what the FDIC's 
     ATS memo concluded was a marginal-at-best lawsuit.)
       I understand that in a lobbying campaign, hundreds of 
     letters were sent directly to the highest levels of the FDIC 
     and OTS encouraging the agencies to file suit against MAXXAM 
     to ``create'' a debt that could be ``swapped'' for the 
     Headwaters Forest. In fact, the ATS memorandum advised FDIC 
     senior management that the Clinton Administration was 
     ``seriously interested'' in pursuing a ``debt-for-nature'' 
     swap and warned that the agency would come under severe 
     criticism from the environmental community if it did not 
     proceed against Mr. Charles Hurwitz and MAXXAM.

[[Page E2521]]

       I have very serious concerns over the notion that the FDIC 
     somehow has the authority, let alone ``the power and duty to 
     protect forest assets * * * and endangered and threatened 
     species'' as the extremist activists told your office. I am 
     not aware of FDIC or OTS authority or jurisdiction in these 
     areas. However, the Committee on Resources does have the 
     constitutional and jurisdictional authority under the Rules 
     of the House of Representatives involving the Headwaters 
     Forest, management of the Headwaters Forest, federal 
     additions to the Headwaters Forest, and threatened and 
     endangered species.
       In addition, as is evidenced in the following excerpt from 
     a letter from an Earth First! activist to the Federal 
     District Court Judge overseeing the FDIC's case against 
     MAXXAM, the environmental community publicly claimed credit 
     for manipulating the FDIC and OTS into pursuing the ``debt-
     for-nature'' course related to Headwaters: ``As the initiator 
     of the so-called `Debt-for-nature' campaign, I have decided 
     to write you prior to your making your final ruling around 
     this case. The campaign to encourage the FDIC to sue Charles 
     Hurwitz and the MAXXAM Corporation was and is designed 
     to stand up on its own, regardless of whether a debt for 
     nature swap ensues . . . I have heard it argued that the 
     FDIC only filed this suit to cave into pressure from 
     citizens. Well may I ask, de facto, what is wrong with 
     pressure from citizens? (emphasis added) This is a 
     strikingly candid admission and certainly supports the 
     conclusion that the pressure exerted was successful in 
     prompting the FDIC to file a suit that its internal 
     policies would otherwise not have authorized.
       Since the initiation of the litigation by the FDIC and the 
     OTS, the Federal and State of California governments have 
     purchased the Headwaters Forest. With the federal 
     acquisition, the issue was laid to rest. The purchase was 
     accomplished through legislation authored by Members of the 
     Committee on Resources, and is a subject within the 
     jurisdiction of the Committee. The management of the 
     Headwaters Forest is also within the jurisdiction of the 
     Committee. The legislation and agreement reached when 
     Congress adopted Title V of P.L. 105-83 contemplated no 
     additions to the Headwaters Forest over five acres. However, 
     the extreme elements within the environmental movement, the 
     FDIC, and the OTS continue to pursue what appears to be an 
     orchestrated agenda and cases against MAXXAM and Mr. Charles 
     Hurwitz to apparently create a ``debt'' to be ``swapped'' for 
     additions to the Headwaters Forest owned by Pacific Lumber. 
     This idea is contrary to the agreement reached by Congress 
     and the Administration, contrary to the law, and contrary to 
     the mission of the FDIC.
       As a result, I have initiated this oversight review and 
     make the following request for records in furtherance of the 
     review.
       Request for Records. The review requires the prompt 
     production of all records by the FDIC and OTS that relate to 
     the matter under review as outlined above. In addition, the 
     attached Schedule of Records specifies certain records or 
     categories of records that are also requested and must be 
     produced pursuant to the authority and under deadlines in 
     this letter. The schedule also contains the definition that 
     applies to the term ``records.''
       Interviews. In addition to the information listed above, 
     this inquiry may include a request to interview you and those 
     in the employ of the FDIC and OTS who have knowledge of the 
     matters under review. In addition, should the need for 
     hearings arise, you and staff at the FDIC and OTS may be 
     asked to testify before the Committee.
       Deadline. I request that you strictly comply with the 
     deadlines for production which are as follows: response to 
     this letter by June 20, 2000, and delivery of the records 
     4:00 p.m., Friday, June 23, 2000, to the attention of Mr. 
     Duane Gibson, 1324 Longworth House Office Building. I also 
     request that you provide two sets of all records requested.
       Lead Investigator. This review will be led at the staff 
     level Mr. Duane Gibson, the Committee's General Counsel for 
     Oversight and Investigations. I request that your staff 
     contact him (202-225-1064) after your receipt and review of 
     this letter. Mr. Gibson can assist with any questions. Thank 
     you for your cooperation with this review of matters under 
     the jurisdiction of this Committee. Please be aware that the 
     Committee has the authority to compel production of the 
     records that are requested should they not be produced by the 
     deadline listed above. I anticipate your cooperation so that 
     I will not need to employ this authority.
           Sincerely,
                                                        Don Young,
     Chairman.
                                  ____


  Schedule of Records--Headwaters Forest Additions and Debt for Nature

       1. All records that relate in any way to the FDIC or OTS 
     advancement of claims against Mr. Charles Hurwitz and/or 
     MAXXAM that also in any way mention ``debt for nature,'' the 
     Headwaters Forest, or the Pacific Lumber Company, including 
     but not limited to any records relate to obtaining additional 
     parcels of land referred to as of the Headwaters Forest, 
     which were or are owned by the Pacific Lumber Company.
       2. All records that relate in any way to the FDIC or OTS 
     advancement of claims against Mr. Charles Hurwitz and/or 
     MAXXAM that also in any way mention (or are to or from) the 
     Rose Foundation (including Ms. Jill Rattner), the Turner 
     Foundation or any other grant-making organization and that in 
     any way relate to strategies or legal theories for 
     acquisitions or potential acquisitions of the Headwaters 
     Forest or the concept of ``debt for nature.''
       3. All records that relate in any way to the FDIC or OTS 
     advancement of claims against Mr. Charles Hurwitz and/or 
     MAXXAM that also in any way mention (or are to or from) Earth 
     First!, North Coast Earth First!, Bay Area Coalition on 
     Headwaters, Circle of Life Foundation, The Trees Foundation, 
     The Humboldt Watershed Council, The National Audubon Society, 
     and/or the Sierra Club.
       4. All records of any FDIC Board deliberations, and any OTS 
     deliberations, in which the decision to proceed with 
     litigation against or claims against Mr. Charles Hurwitz and/
     or MAXXAM was considered or discussed.
       5. All records related to any contact between the FDIC or 
     OTS (or any employee of the OTS or FDIC) and any group or 
     individual or group that relates to or mentions the 
     Headwaters Forest.
       6. All records that relate in any way to the Federal 
     Deposit Insurance Corporation's (FDIC) Office of Thrift 
     Supervision's (OTS) advancement of claims against Mr. Charles 
     Hurwitz and/or MAXXAM that also in any way mention ``debt for 
     nature'' or the Headwaters Forest and are to, from, or 
     involve Mr. Bruce Rinaldi, Mr. Ken Guido, Mr. Robert 
     DeHenzel, or Mr. Jeff Williams.
       7. All records showing or related to any contact or 
     communication between anyone employed by, assigned to, or 
     associated with the FDIC or the OTS and anyone employed by, 
     assigned to, or associated with the White House (including 
     the Council on Environmental Quality), The Office of the Vice 
     President, The Department of the Interior, the Forest 
     Service, or the Bureau of Land Management that relate in any 
     way to the FDIC or OTS claims against Mr. Charles Hurwitz 
     and/or MAXXAM that also in any way mention, refer to, or 
     relate to ``debt for nature,'' the Headwaters Forest, or the 
     Pacific Lumber Company.


                              Definitions

       For the purposes of this inquiry, the term ``record'' or 
     ``records'' includes, but is not limited to, copies of any 
     item written, typed, printed, recorded, transcribed, filmed, 
     graphically portrayed, video or audio taped, however 
     produced, and includes, but is not limited to any writing, 
     reproduction, transcription, photograph, or video or audio 
     recording, produced or stored in any fashion, including any 
     and all computer entries, accounting materials, memoranda, 
     minutes, diaries, telephone logs, telephone message slips, 
     electronic messages (e-mails), tapes, notes, talking points, 
     letters, journal entries, reports, studies, drawings, 
     calendars, manuals, press releases, opinions, documents, 
     analyses, messages, summaries, bulletins, disks, briefing 
     materials and notes, cover sheets or routing cover sheets or 
     any other machine readable material of any sort whether 
     prepared by current or former employees, agents, consultants 
     or by any non-employee without limitation and shall also 
     include redacted and unredacted versions of the same record. 
     The term includes records that are in the physical possession 
     of the FDIC or the OTS (as the case may be) and records that 
     were formally in the physical possession of the FDIC or the 
     OTS (as the case may be), as well as records that are in 
     storage. Furthermore, with respect to this request, the terms 
     ``refer'', ``relate'', and ``concerning'', means anything 
     that constitutes, contains embodies, identifies, mentions, 
     deals with, in any manner the matter under review.
       ``FDIC'' means Federal Deposit Insurance Corporation.
       ``OTS'' means Office of Thrift Supervision.
       MAXXAM means MAXXAM Inc., Pacific Lumber Company, and 
     United Savings Association of Texas.