Houston Chron - With Hurwitz, FDIC got more than it bargained for

With Hurwitz, FDIC got more than it bargained for

By LOREN STEFFY

Charles Hurwitz showed up in court Wednesday wearing a tie with a horseshoe pattern because, he said, he was feeling lucky.

He had good reason.

After almost a decade, Hurwitz is on the verge of prevailing in his efforts to extract as much as $61 million in sanctions from the Federal Deposit Insurance Corp.

Hurwitz claims he has been the target of a government conspiracy to force him to settle a lawsuit with the FDIC by surrendering a redwood forest his company owns in California. The FDIC's case stemmed from the $1.6 billion collapse of United Savings Association of Texas in 1988, the country's fifth-largest savings and loan failure.

The FDIC, which is used to playing the role of the taxpayers' champion, has found itself with few allies. Judge Lynn Hughes criticized the agency's attorneys for not being careful about the details of their testimony, he implied the FDIC may not have followed proper procedure in voting to sue Hurwitz in 1995 and even suggested one government lawyer may have perjured himself.

The FDIC approaches failed S&L cases with a presumption of guilt for all involved. After all, savings and loan deregulation allowed scores of developers and wheeler-dealers to loan money to themselves under ridiculous terms, all guaranteed by the government. Stories of excess are legion — prostitutes at board meetings, secretaries put up as bets in a $5,000 game of quarters, 12-year-olds given vintage Ferraris.

But the Hurwitz case had none of that. Whatever his business transgressions, Hurwitz didn't lead a flashy lifestyle.

What's truly stunning about the case is the flimsiness of the government's claims. It doesn't accuse Hurwitz of fraud or that he enriched himself by looting United Savings. In fact, as close as it comes is making an argument for what could best be described as "inverse enrichment."

It claims Hurwitz enriched himself not by taking money out of the thrift, but by not putting money in when the S&L was failing.

The government, though, has been unable to prove Hurwitz or his company was required to do so. Hurwitz, being the savvy deal maker he is, put several layers of interlocking companies between Maxxam and the thrift.

Massive investigations and legal proceedings by two government agencies over 15 years at a cost to taxpayers of $13 million, and this is where we end up: Hurwitz enriched himself by not spending money.

In the end, Hurwitz paid about $200,000 and agreed to be banned from the banking industry by the Office of Thrift Supervision, which settled that agency's arm of the case. The payment came after the office's administrative law judge recommended that the case be thrown out. The FDIC, after seven years in court, dropped its proceeding a month later.

With the original cases over, Hurwitz turned around and sued the government.

Hurwitz sat stoically with his wife, Barbara, during most of the proceedings, but his outrage boiled over after one memo from an FDIC attorney said the agency should "cause Hurwitz some pain."

"They want to cause me pain?" he said later. "This is the federal government talking. They should be embarrassed to be here."

Embarrassed? No, the FDIC's people seemed more annoyed. They know the case is going badly. They roll their eyes at Hughes' rulings, which in the past have gone so far as to liken their methods to the Cosa Nostra. Hughes, of course, is no friend of the government, but the FDIC isn't doing itself any favors.

The FDIC says Hurwitz's lawyers have selectively extracted pieces of documents to stitch together a conspiracy theory, but they have produced little evidence that cuts through the tapestry. They bristle at having their tactics turned on them.

A final ruling is weeks away, but Hughes gave a strong indication of his views.

"I think the FDIC is through picking on Mr. Hurwitz," he said Wednesday.

There aren't many people who feel sorry for Charles Hurwitz. A quick Google search on his name reveals how intensely he is disliked, especially among environmentalists. He has a Web site in his honor, www.jailhurwitz.com, that shows a likeness of him behind bars.

His takeover gambits in the 1980s are reminiscent of the Gordon Gekko character in the movie Wall Street. He raided the employee pension plan at Pacific Lumber to fund his takeover. When he increased logging to raise revenues, protesters climbed the ancient redwoods on Pacific Lumber's land and lived there to keep them from being cut down.

Internal memos unearthed in the various investigations show FDIC lawyers knew they had a poor chance of winning, yet the agency filed the case anyway. That decision coincided with pressure from environmental groups on the Clinton administration to get control of the redwoods.

The agency says it didn't bow to political pressure, but the pressure clearly was there, and Hurwitz's track record made him an easy target.

The FDIC, though, didn't expect Hurwitz to fight. Most S&L figures, guilty or not, settled so they could get on with their lives. In Hurwitz, the agency confronted a formidable combination of wealth and stubbornness. As a result, it's been outsmarted and outmaneuvered at every turn.

Before this week's hearings began, one of the FDIC lawyers said I must think they wear the black hats in this case. He's wrong. I think they wear the dunce caps.

Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays
HoustonChronicle.com -- http://www.HoustonChronicle.com | Section: Business
July 1, 2004, 11:42PM

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BACH (Bay Area Coalition for Headwaters) spin on that story:
BACH's spin >>>Hurwitz is enriched--once again<<<

A federal judge issued an order for the FDIC to pay Charles Hurwitz up to $72 million, sanctioning the federal agency for its lawsuits against Hurwitz.

If you remember the Debt for Nature campaign, you will recall that federal banking regulators took unprecedented and courageous action to obtain justice in the face of Charles Hurwitz's Maxxam Corp. plundering of public trust resources and his corporate raider banditry.

Based on the crashing of a Texas Savings & Loan that left the U.S. taxpayers holding a $1.6 billion bag in bailout costs, the agency that insures bank funds, the Federal Deposit Insurance Corp. (FDIC) filed suit, seeking $250 in restitution based on its findings of wrongdoing, followed by a similar suit filed by the Office of Thrift Supervision (OTS) seeking to recoup $821 million.

Advocates for Headwaters Forest weighed in with a particularly innovative solution that could uniquely serve ecological goals and taxpayer justice: a "debt for nature" swap that would accept critical forest land owned by Maxxam subsidiary Pacific Lumber (PL) to satisfy the federal claims against the parent company, putting valuable assets, if not cash, in the public domain. While this solution attracted significant support in government, public and other circles, it did not come to fruition before the OTS claim was ultimately settled in 2002 by Maxxam's payment of $206,000 and a restriction barring Hurwitz from affiliating with or running banking institutions for three years.

Not only was Hurwitz charged with duping regulators and violating rules governing thrift institutions, it was alleged that his shady dealings including laundering money for Michael Milkin, prosecuted in Wall Street's biggest criminal prosecution every, charged with 98 counts of fraud and racketeering, bringing him a 10 year prison sentence. Milkin helped Hurwitz put together the junk bond financing for the take over of Pacific Lumber.

In light of the long history of blatant violation of hundreds of federal, state and regulatory laws and rules, this decision is a huge disappointment. It is all the more stinging because of the language in the opinion, incredibly portraying the poor corporate raider Hurwitz standing his ground against the "Goliath" of government agencies responsible for protecting the public trust. We can send you the Texas judge's opinion in a pdf document if you request it from us.

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