Houston Chron - After Hurwitz's ordeal, questions remain for FDIC

After Hurwitz's ordeal, questions remain for FDIC
By LOREN STEFFY
Copyright 2005 Houston Chronicle Aug. 25, 2005, 9:53PM

Was it worth it?

That's the question I put to Charles Hurwitz on Wednesday afternoon as we talked on the phone about the court ruling that awarded the Houston financier and Maxxam, the holding company he controls,$72 million in sanctions against the federal government.

"That's a good question," he said. "Really, it's many questions."

Indeed. My own interest in the Hurwitz case started with a question. A few years ago, I asked why the FDIC would walk away from a case it had spent seven years preparing for and seven years litigating.

The ugly answer is revealed in some 2 million pages of court documents and congressional testimony: It brought the case simply because it could, because Hurwitz had something the government wanted. It walked away when its strong-arm tactics didn't work.

Some questions, though, remain unanswered. Why, for example, did the Federal Deposit Insurance Corp. continue to pursue a case its own lawyers predicted, before the case was filed, it probably would lose?

Or why, after getting almost everything they wanted, do environmentalists continue to dog Hurwitz over logging by his Pacific Lumber Co. in Northern California?

The answer, I'm convinced, is Hurwitz himself. He enrages his adversaries with his iron-jawed refusal to accede to their demands. He wouldn't acquiesce to the FDIC. His closest friends told him it wasn't worth it, that fighting the government would ruin him and that it was better to settle and get on with his life.

Meanwhile, environmentalists demonized him for cutting trees that his lumber company owned. He offered to sell his old-growth redwoods to the government, but it didn't want to pay.

So the government tried extortion. It offered to settle the FDIC lawsuit if Hurwitz would surrender the trees, according to documents unearthed during congressional hearings in 2000.

FDIC spokesman David Barr disputes that. He says the agency was never interested in trees, only recovering the $1.6 billion lost in the collapse of Maxxam's United Savings in 1988.

'Never mind'

After keeping Hurwitz in court for seven years, the FDIC tried to walk away from its lawsuit — a billion-dollar twist on Gilda Radner's signature line "never mind."

Barr says this was because a parallel case, pending before an administrative law judge for the Office of Thrift Supervision, had run its course. But the judge in that case essentially found the regulators' claims lacking. Hurwitz agreed to a token settlement, but not the recovery the FDIC wanted.

The old-growth redwoods are now protected in a national forest. The government ultimately paid for the property. Pacific Lumber, in turn, agreed to stringent logging restrictions. The FDIC has been verbally spanked by a federal judge and told to pay Hurwitz $72 million, a sanction that Judge Lynn Hughes noted in his ruling is unprecedented.

It's not over yet

Yet the fight goes on. Environmentalists are trying yet again to restrict Pacific Lumber's logging, this time by claiming that streams are being damaged by erosion from tree cutting. The FDIC intends to appeal Hughes' ruling, Barr says.

The fight goes on because Hurwitz himself goes on, because at every turn he's refused to bow to the incredible pressure brought against him.

Which brings me back to my original question: Was it worth it?

"I'm very gratified with the outcome," Hurwitz said matter-of-factly. "How could I not be?

"If somebody had said 15 years later we'd be here and have spent this kind of money, I probably wouldn't have done it." Then he added: "I always knew we were right."

Opportunities lost

Being right, though, came at a cost. Hurwitz's Maxxam holding company has passed on some potentially lucrative deals. Hughes made reference to the lost opportunities in his ruling.

"He captured the sense of this thing when he talks about taking the entrepreneurial juices away," Hurwitz said. "That's really what happened."

Maxxam has suffered, too. Pacific Lumber recently proposed giving creditors control of its timber operations to reduce debt. Maxxam's shares are trading almost 53 percent below where they were when the FDIC filed its lawsuit 10 years ago. The Standard & Poor's 500 Index has more than doubled during that time.

"This will put us back on a growth path," Hurwitz said. "We'll kind of pick up the pace. We'll divert our energies into other things instead of thinking about the government."

It depends, though, on if the government is done thinking about him.

Hurwitz, of course, says if the FDIC wants to go another round, he will. After all, he says, it's worth it.

Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays.