HoustonChronicle.com -- http://www.HoustonChronicle.com | Section:
Business
July 1, 2004, 11:42PM
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. Contact him at loren.steffy@chron.com
*********
#267
October 1999
Congress Should Hold Hearings on FDIC Abuse of Citizens
by Amy Ridenour
Innocent until proven guilty, right?
That's what it says in civics textbooks. But in the real world, sometimes government officials want you to be guilty. If that happens, even if you are innocent, you can be in big trouble.
Take the cases of Charles Hurwitz of Texas and Glen Garrett of Missouri.
In Hurwitz's case, the government wanted valuable land owned by Hurwitz's company. Hurwitz was willing to sell, but as the land carried a high fair-market value, it was expensively priced. Rather than buy the land in an honest transaction, the government sued Hurwitz's business over an unrelated regulatory matter under the jurisdiction of the U.S. Federal Deposit Insurance Corporation (FDIC). Essentially, the government said: Give us the land; we'll settle the suit.
In other words, blackmail.
On that day, the Founding Fathers rolled over in their graves.
Internal documents show that the land-confiscation scheme, unconstitutional though it was, had the approval of government officials as high as the White House. On March 21, 1995, then White House Chief of Staff Leon Panetta, in fact, wrote a letter on White House stationery endorsing this scheme, saying, "Budgetary constraints have made it impractical to acquire such an expensive tract of land through outright federal purchase."1
Even more chillingly, after a federal judge forced the FDIC, over its protests - including an appeal to another court,2 to make public some of the FDIC's internal documents, it became clear that the FDIC knew perfectly well that it had little chance of proving Hurwitz guilty. Although FDIC policy prohibits the agency from pursuing cases unless it is "more than likely to succeed," in its zeal to acquire the land, the FDIC ignored its own policies and proceeded with a suit it knew lacked merit.3
Hurwitz refused to be blackmailed, but he did fully cooperate with investigators4 and he sold the government the land for a price lower than its value. The banking agencies were not grateful. Instead, the FDIC continued its case against Hurwitz in a federal court, where the government is unlikely to win. It also opened a "second front" against Hurwitz by way of an internal government Office of Thrift Supervision (OTS) regulatory hearing, paid for by the FDIC, where Hurwitz's rights are limited and where his guilt will be determined by administrators paid by the prosecutors.
According to the journal of the American Bar Association, the proceedings in this chamber are so greatly in the government's favor that one of the administrative judges has never once ruled against the government.5
Reportedly, the government hopes to force Hurwitz to surrender some additional land that was not included in the sale. A federal district judge called the case a "manipulation of the court system."6
So far, Hurwitz and his companies have spent over $20 million in this case7 and taxpayer expenditures are similar.8
The Oxford English Dictionary refers to the infamous "Star Chamber" as a court whose "rules of procedure... rendered it a powerful instrument in the hands of a sovereign or ministry desirous of using it for tyranny."9
We like to think we've come far since the 15th-17th century Star Chamber, but we obviously have not.
The story of small-town Missouri banker Glen Garrett is different, but no less alarming to those who believe that Americans who are innocent of any crime have the right not to be hounded by their government.
Garrett was the subject of an anonymous, ill-founded and false accusation of dishonesty against him made to the state bank examiners, who passed them on to the FDIC. It was later shown that the false charges were made by one of Garrett's business competitors, hardly an objective source.
The FDIC began an exhaustive investigation that would eventually take almost a decade to resolve. Despite finding insufficient evidence of any wrongdoing, the FDIC was undeterred. Worse, an FDIC senior management official demonstrated extreme bias, saying, "Glen Garrett should be castrated."
Rather than find proof of wrongdoing by Garrett, however, the FDIC racked up an impressive list of wrongdoing of its own. Among them:
* An FDIC official asked an officer of Garrett's bank to lie about the investigation. When the officer refused and the bank complained to the FDIC, no action was taken.
* During the investigation, a government official told another banker false derogatory information about Garrett's personal confidential financial affairs. It is a violation of criminal statues for government bank examiners to release personal financial information they learn during a bank examination to another banker. Again, no action was taken.
* The FDIC attempted to incite a U.S. Attorney to bring a criminal indictment against Garrett by sending the U.S. Attorney a written referral which contained numerous false and unsubstantiated allegations against Garrett, which the FDIC labeled as "facts," not "allegations" or "suspicions." The FDIC has conceded that they made false allegations.
* During a hearing Garrett subpoenaed two FDIC officials to testify about their knowledge of the case. In a blatant attempt to subvert Garrett's rights in court, the FDIC responded by sending letters to its own employees threatening them with criminal prosecution if they testified.
In the end, and after Garrett was forced to spend almost $2 million to defend against the false FDIC allegations, the FDIC decided to withdraw and dismiss (with extreme prejudice, which means they can never resurrect the charges again) all charges it made against Garrett, thus totally vindicating him of all wrongdoing. But even here, the FDIC required one last tribute from Garrett: he had to pledge not to sue the FDIC for wrongful prosecution.10
On October 11, Federal Reserve Chairman Alan Greenspan delivered a major speech to the annual convention of the American Bankers Association on the need for changes in the banking regulation system, but he said not one word about the urgent need to correct abuses like these.11 This was wrong.
One of Thomas Jefferson's complaints about the British government in the Declaration of Independence was that King George III had "depriv[ed] us in many cases, of the benefits of trial by jury." The Declaration of Independence retains a powerful resonance because it speaks of timeless, universal truths. The regulatory process should never be used as a substitute for objective adjudication by an impartial tribunal.
Our government today needs to reaffirm its commitment to these truths, which remain as important today as they were to our citizenry in 1776. Congress should hold hearings to look into these events, and develop policies to prevent future such abuses.
Footnotes:
1 Bob Sablatura, "Redwoods, Not Red Ink, May Have Motivated FDIC Against Hurwitz; Documents Show Agency May Have Tried to Hide Truth in Pursuing Suit Against Financier," Houston Chronicle, July 19, 1998, p. A1.
2 Sablatura, p. A1.
3 Sablatura, p. A1.
4 Letter of U.S. House of Representatives Majority Whip Tom DeLay to The Honorable Donna A. Tranoue, Chairman, Federal Deposit Insurance Corporation, and Mr. Gaston L. Gianni, Jr., Inspector General, Federal Deposit Insurance Corporation, February 3, 1999.
5 Terry Carter, "Banking and Fear," ABA Journal, July 1999.
6 United States District Judge Lynn N. Hughes, "Opinion on Dismissal of The Office of Thrift Supervision," Federal Deposit Insurance Corporation and Office of Thrift Supervision v. Charles E. Hurwitz, U.S. District Court, Southern District of Texas, Civil Action H-95-3956, October 23, 1997.
7 Sablatura, p. A1.
8 Quoted in "Charles Hurwitz is No Sap," by Kathryn Jones, Texas Monthly Biz, June 1999, Charles Hurwitz estimates the combined expenditures of Hurwitz and his companies and the government at $50 million.
9 The Oxford English Dictionary, Oxford University Press, 1971.
10 Information about the story of Glen Garrett was obtained from the following sources, among others: Terry Carter, "Banking on Fear," ABA Journal, July 1999; Interviews with Stephens B. Woodrough, legal counsel for Glen Garrett and former FDIC litigator, conducted in September and October 1999; Woodrough, Stephens B., "The Abuse of Regulatory Power - A New and Powerful Antidote," (unpublished); Prepared testimony by Stephens B. Woodrough before the Small Business Administration Regulatory Enforcement Fairness Board, St. Louis, Missouri, June 8, 1998; Testimony of Paul G. Fritts, former FDIC Executive Director of Supervision and Resolutions before the Small Business Administration Regulatory Enforcement Fairness Board, St. Louis, Missouri, June 8, 1998.
11 Prepared text of speech delivered by U.S. Federal Reserve Chairman Alan Greenspan to the American Bankers Association in Phoenix, Arizona, on October 11, 1999.
# # #
Amy Ridenour is president of The National Center for Public Policy Research. Comments may be sent to ARidenour@nationalcenter.org.
Showing posts with label Hurwitz v FDIC. Show all posts
Showing posts with label Hurwitz v FDIC. Show all posts
12.17.2007
HC - August 07, 2007 Hurwitz pleads his case before appeals court
Hurwitz: back in court
Charles Hurwitz, the bane of California environmentalists, was in New Orleans today urging the 5th U.S. Circuit Court of Appeals to uphold his $72 million in sanctions against the Federal Deposit Insurance Corp.
You can find more on the case in earlier posts here and here, and in columns here and here.
Hurwitz, who runs Houston-based Maxxam, isn't happy to be in court again, almost 20 years after his battle with FDIC began, but his attorney, Kenny Friedman, said despite that they're pleased with today's proceedings.
"It went as well as we could have hoped," he said. "We're very optimistic that the 5th Circuit will agree with us."
At issue is whether the FDIC acted with an improper motive when it sued Hurwitz over the collapse of United Savings Association of Texas in 1988.
A congressional committee later found that the FDIC was part of a broader scheme to force Maxxam's Pacific Lumber Co. to surrender old-growth redwood forests in California. Hurwitz eventually sold the trees to the government.
After seven years of pressing the case in court, the FDIC withdrew it. U.S. District Judge Lynn Hughes later likened the agency's tactics to those of the mafia and awarded Hurwitz what may be the biggest sanction ever for an individual against a government agency.
The FDIC disputes some of Hughes' findings of facts in the case and has maintained it did nothing improper.
The 5th Circuit's track record on sanctions against the government doesn't bode well for Hurwitz. Friedman, however, noted by upholding the sanctions, the court would be setting a precedent only in cases in which a government agency abuses its power.
Regardless of the outcome, Friedman said, "we are hopeful that the FDIC will take a good hard look at itself, or Congress will, and insure that this never happens again."
A ruling on the appeal could take six months.
August 07, 2007
Steve Ueckert/Houston Chronicle
Technorati Tags: Hurwitz, FDIC, legal, Pacific Lumber
Charles Hurwitz, the bane of California environmentalists, was in New Orleans today urging the 5th U.S. Circuit Court of Appeals to uphold his $72 million in sanctions against the Federal Deposit Insurance Corp.
You can find more on the case in earlier posts here and here, and in columns here and here.
Hurwitz, who runs Houston-based Maxxam, isn't happy to be in court again, almost 20 years after his battle with FDIC began, but his attorney, Kenny Friedman, said despite that they're pleased with today's proceedings.
"It went as well as we could have hoped," he said. "We're very optimistic that the 5th Circuit will agree with us."
At issue is whether the FDIC acted with an improper motive when it sued Hurwitz over the collapse of United Savings Association of Texas in 1988.
A congressional committee later found that the FDIC was part of a broader scheme to force Maxxam's Pacific Lumber Co. to surrender old-growth redwood forests in California. Hurwitz eventually sold the trees to the government.
After seven years of pressing the case in court, the FDIC withdrew it. U.S. District Judge Lynn Hughes later likened the agency's tactics to those of the mafia and awarded Hurwitz what may be the biggest sanction ever for an individual against a government agency.
The FDIC disputes some of Hughes' findings of facts in the case and has maintained it did nothing improper.
The 5th Circuit's track record on sanctions against the government doesn't bode well for Hurwitz. Friedman, however, noted by upholding the sanctions, the court would be setting a precedent only in cases in which a government agency abuses its power.
Regardless of the outcome, Friedman said, "we are hopeful that the FDIC will take a good hard look at itself, or Congress will, and insure that this never happens again."
A ruling on the appeal could take six months.
August 07, 2007
Steve Ueckert/Houston Chronicle
Technorati Tags: Hurwitz, FDIC, legal, Pacific Lumber
5.15.2007
HC - 'IT SHOULDN'T HAPPEN'
Aug. 25, 2005
'IT SHOULDN'T HAPPEN' A low-key victor after a huge win
Maxxam chief Hurwitz matter-of-fact after prevailing in court over government
By TOM FOWLER Copyright 2005 Houston Chronicle
Steve Ueckert/Chronicle
Charles Hurwitz says his company was hampered by the government's legal case against it, which U.S. District Judge Lynn Hughes called "arbitrary, dishonest, exploitative."
For a man who just won $72 million from the government, Charles Hurwitz hardly seemed to be in the throes of celebration Wednesday.
Rather, the Houston financier was low-key and matter-of-fact in discussing the decision by U.S. District Judge Lynn Hughes to penalize the Federal Deposit Insurance Corp. for what the judge called an "arbitrary, dishonest, exploitative" lawsuit against Hurwitz.
"We never want the government to have another one of these lawsuits like this that lets them, just on a punitive basis, go after people without having a good background to do so," Hurwitz said. "It shouldn't happen."
Hurwitz and the companies he controls, Maxxam Corp. and Federated Development Corp., were accused by the FDIC in 1995 of furthering the $1.6 billion collapse of a Texas savings and loan in 1988. The suit, and another by a sister agency, the Office of Thrift Supervision, were filed despite warnings by internal and external counsel that the cases would not hold up in court.
Both suits were later dismissed, with Hurwitz paying just $206,000 in one case.
He filed a countersuit against the FDIC claiming the legal battles were really an effort to force the company to give up thousands of acres of old-growth redwood forests in Northern California.
Hughes ruled in his favor last year and issued a lengthy and spirited opinion against the FDIC on Tuesday, ordering a $72 million payment to Hurwitz for legal costs and interest.
FDIC officials described Hughes' decision as "one of the most imaginative and colorful opinions in banking law that has ever been written," and said the agency plans to appeal.
Spokesman David Barr noted that the U.S. 5th Circuit Court of Appeals has overturned two decisions of Hughes' related to the case, namely his allowing the unsealing of two documents.
"We're confident that history will repeat itself," Barr said.
Hurwitz seemed to doubt if the FDIC would do so, however.
"I know that's what they're saying, but we'll see," Hurwitz said.
Maxxam is a holding company for a variety of businesses, ranging from lumber to high-end residential construction to horse and dog racing parks.
The company is a majority owner of bankrupt Kaiser Aluminum, and has been in other industries, including energy, sugar and one that made women's dress patterns.
Hurwitz is a majority owner of Maxxam.
Shares of Maxxam closed up $2.56 on Wednesday to $29.01.
Hurwitz said the decade-long case took its toll on him personally, saying it was " ... pretty heavy duty to be sued by the government for $1 billion."
Maxxam was also hampered by the legal actions.
"I think it's changed the way I thought about running a company for a while because we had this big $1 billion potential liability from the government," he said. "And that limits certain things one can do. We've been a lot quieter in the last few years than we were before."
Despite efforts to remain low-key, controversy seems to find Hurwitz companies.
Kaiser Aluminum has had labor strife as it struggled under the burdens of asbestos litigation.
And his Ritz-Carlton Rancho Mirage Hotel California was built in 1988 only after a fight with environmentalists and wealthy neighbors.
When Maxxam purchased Pacific Lumber in a leveraged buyout, Maxxam increased its tree harvest rate when it realized the company's holdings were much larger than original estimates.
Environmental groups accused the company of irresponsible practices and waged a bitter and personal war against Hurwitz. The Web site www.jailhurwitz.com was just one example of the intensity.
Hurwitz defended the company's operations, saying that after it sold a huge stand of old-growth forest to the state of California for preservation, it agreed to follow very tough environmental practices.
"We certainly would like for them to appreciate more of what we're doing," Hurwitz said of his opponents in Northern California. "We feel pretty good about the way we run our businesses. We're a long-term investor, and we've invested a lot of money in these companies. I think we've done well over the years."
'IT SHOULDN'T HAPPEN' A low-key victor after a huge win
Maxxam chief Hurwitz matter-of-fact after prevailing in court over government
By TOM FOWLER Copyright 2005 Houston Chronicle
Steve Ueckert/Chronicle
Charles Hurwitz says his company was hampered by the government's legal case against it, which U.S. District Judge Lynn Hughes called "arbitrary, dishonest, exploitative."
For a man who just won $72 million from the government, Charles Hurwitz hardly seemed to be in the throes of celebration Wednesday.
Rather, the Houston financier was low-key and matter-of-fact in discussing the decision by U.S. District Judge Lynn Hughes to penalize the Federal Deposit Insurance Corp. for what the judge called an "arbitrary, dishonest, exploitative" lawsuit against Hurwitz.
"We never want the government to have another one of these lawsuits like this that lets them, just on a punitive basis, go after people without having a good background to do so," Hurwitz said. "It shouldn't happen."
Hurwitz and the companies he controls, Maxxam Corp. and Federated Development Corp., were accused by the FDIC in 1995 of furthering the $1.6 billion collapse of a Texas savings and loan in 1988. The suit, and another by a sister agency, the Office of Thrift Supervision, were filed despite warnings by internal and external counsel that the cases would not hold up in court.
Both suits were later dismissed, with Hurwitz paying just $206,000 in one case.
He filed a countersuit against the FDIC claiming the legal battles were really an effort to force the company to give up thousands of acres of old-growth redwood forests in Northern California.
Hughes ruled in his favor last year and issued a lengthy and spirited opinion against the FDIC on Tuesday, ordering a $72 million payment to Hurwitz for legal costs and interest.
FDIC officials described Hughes' decision as "one of the most imaginative and colorful opinions in banking law that has ever been written," and said the agency plans to appeal.
Spokesman David Barr noted that the U.S. 5th Circuit Court of Appeals has overturned two decisions of Hughes' related to the case, namely his allowing the unsealing of two documents.
"We're confident that history will repeat itself," Barr said.
Hurwitz seemed to doubt if the FDIC would do so, however.
"I know that's what they're saying, but we'll see," Hurwitz said.
Maxxam is a holding company for a variety of businesses, ranging from lumber to high-end residential construction to horse and dog racing parks.
The company is a majority owner of bankrupt Kaiser Aluminum, and has been in other industries, including energy, sugar and one that made women's dress patterns.
Hurwitz is a majority owner of Maxxam.
Shares of Maxxam closed up $2.56 on Wednesday to $29.01.
Hurwitz said the decade-long case took its toll on him personally, saying it was " ... pretty heavy duty to be sued by the government for $1 billion."
Maxxam was also hampered by the legal actions.
"I think it's changed the way I thought about running a company for a while because we had this big $1 billion potential liability from the government," he said. "And that limits certain things one can do. We've been a lot quieter in the last few years than we were before."
Despite efforts to remain low-key, controversy seems to find Hurwitz companies.
Kaiser Aluminum has had labor strife as it struggled under the burdens of asbestos litigation.
And his Ritz-Carlton Rancho Mirage Hotel California was built in 1988 only after a fight with environmentalists and wealthy neighbors.
When Maxxam purchased Pacific Lumber in a leveraged buyout, Maxxam increased its tree harvest rate when it realized the company's holdings were much larger than original estimates.
Environmental groups accused the company of irresponsible practices and waged a bitter and personal war against Hurwitz. The Web site www.jailhurwitz.com was just one example of the intensity.
Hurwitz defended the company's operations, saying that after it sold a huge stand of old-growth forest to the state of California for preservation, it agreed to follow very tough environmental practices.
"We certainly would like for them to appreciate more of what we're doing," Hurwitz said of his opponents in Northern California. "We feel pretty good about the way we run our businesses. We're a long-term investor, and we've invested a lot of money in these companies. I think we've done well over the years."
4.28.2007
DEBT FOR TREES PART 1 and PART 2
This is an interesting chronology of the Pacific Lumber/Headwaters saga, complete with the high level players, and the pressure groups, big Foundations and extremist environmental groups:
This is the link to this two part series. It works most of the time.
DEBT FOR TREES PART 1
from there you can link to PART 2.
Both are included below:
DEBT FOR TREES PART 1
By Jon Christian Ryter September 1, 2005 NewsWithViews.com
Houston financier and corporate raider Charles Hurwitz's problems began with the collapse of a little known Texas thrift in 1988, United Savings Association of Texas—only Hurwitz's purported complicity in the collapse of the savings and loan company never surfaced until about the time his company, MCO Holdings (which changed its name in 1995 to Maxxam, Inc.) assumed Pacific Lumber Company in 1986. Once the Pacific Lumber buyout was complete Hurwitz's problems began. But not from the US government— from environmentalists.
One of Pacific Lumber's most valuable assets was a stand of 1,000-plus year old coastal redwood trees in Humboldt County—in a 6,000 acre tract of ancient redwoods in the 90,000 acre Headwaters' Forest know as the Headwaters Grove. Each of the 300 foot tall ancient giant redwoods have a commercial street value—as cut lumber—of at least $100,000. Hurwitz, who used junk bonds to finance his takeover of Pacific Lumber needed to liquidate some of the assets of the newly acquired company to pay down the debt.
Hurwitz became interested in Pacific Lumber when junk bond investment banker Drexel Burnham Lambert advised MCO that Pacific Lumber had made an overpriced offer to buy back its own stock in 1984, causing MCO to take a closer look at the company as a potential hostile takeover since Pacific was not interested in suitors. And the closer Hurwitz looked, the better Pacific Lumber looked. Finally, in October, 1985 he went after it, assuming control of the company in 1986.
Environmentalists feared Hurwitz would clear-cut the Headwaters Grove of its ancient treasures to pay for the takeover. In reality, Hurwitz already planned to sell off specific assets of Pacific Lumber to pay for the takeover—and the Headwaters Grove was not part of his thinking. However, MCO Holdings, which was extremely leveraged, still needed to generate a revenue stream, and planned to clear-cut up to a thousand acres of Pacific Lumber's expansive reserve of Douglas pines, spruce, coastal redwoods and other timber species which the company owned. Within a matter of months, Hurwitz doubled Pacific Lumber's relatively conservative lumber harvesting practices. That convinced the greens that a land-stripper had taken over the 117 year old company.
Pacific Lumber was an institution in northern California, and had been since 1869. It was the largest employer in Humboldt County, owning around 194,000 acres of prime timberland worth billions of dollars at retail. Yet, it was not as profitable as it could have been, or should have been, due to environmentalists who did everything possible to hamstring logging operations for over a decade. The constant inference of Pacific's logging operation by radical green groups made Pacific Lumber "easy pickings" for any corporate raider. When Hurwitz took it over it wasn't long before green groups like Earth First!, the Sierra Club and Greenpeace were targeting Hurwitz, who became the "scorched earth" villain.
In January 1995, Humboldt environmentalist activist Robert Martel filled a lawsuit in US District Court against Maxxam, Industries seeking $1.6 billion to cover the losses suffered by Maxxam's bankrupt S&L, United Savings Association of Texas plus an additional $4.8 billion in punitive damages on behalf of the American taxpayers. Because Martel represented neither the government nor the depositors of United Savings, there was no legal basis for his filing. But, his lawsuit opened Pandora's box. When the federal court—which should never have accepted the action in the first placed—ruled against him, Martel appealed that court's decision to the 5th Circuit Court of Appeals. The appellate court not only rejected Martel's appeal, it ordered him to pay Maxxam's legal fees of more than $110,000, saying that Martel's case was "frivolous"
In August of 1995, FDIC Chairman Ricki Tigert-Helfer filed the first of two "recovery" lawsuits in US District Court in Houston. The action, FDIC v Hurwitz, sought $250 million in damages—not from Maxxam (as MCO Holding had been renamed)—but from Hurwitz personally. When she filed her suit, Tigert-Helfer asked the Office of Thrift Management to investigate Charles Hurwitz and Maxxam for wrongdoing. In December, 1995 the Office of Thrift Management filed 13 claims against the defendants of its own lawsuit—against Hurwitz, Maxxam, two other Maxxam companies: Federated Development Company, United Financial Group (which was the parent company of United Savings), and the former and current directors of the S&L. The OTM sought $821 million in damages. The FDIC and the OTM both alleged that Hurwitz's business dealings with Drexel Burnham Lambert contributed significantly to the thrift's failure by not keeping it properly capitalized. They also alleged that Hurwitz "raided" the assets of United Savings to purchase Pacific Lumber, making Hurwitz personally liable for the $1.6 billion the OTM claims United Savings lost.
From the time the dual actions were filed by the FDIC and the OTM, Hurwitz's lawyer, Richard Keeton, was approached by various environmental groups suggesting that the government would entertain a "debt-for-trees" swap. Hurwitz would get to walk away from the FDIC and OTM charges if he agreed to allow the old stand of 300' tall redwoods in Headwaters Grove be deeded to the US government. The government would make the Headwaters redwoods part of the Six Rivers National Forest. In the early 1990s, Howard Hughes' estate engaged in a "debt for nature" swap when the estate traded some wetlands near the Los Angeles Airport to settle a tax bill owed the State of California. Several third world countries swapped land that US environmentalists thought should be protected for the debt they owed the United States. Bolivia traded tropical forests to clear their debt. Land swaps were also done with the Philippines and several other nations as well.
In February, 1997 Deputy Interior Secretary John Garamendi approached Maxxam to arrange for the acquisition of the Headwater Grove. Maxxam's general counsel, J. Kent Friedman, told the Clinton Administration official that Maxxam would consider selling the Headwater Grove to the Interior Department—but only on the condition that the government drop its FDIC lawsuit. "We want this case to go away," Friedman said.
Garamendi reported "...Hurwitz brought that to the table numerous times," but he added, he refused to intervene on Hurwitz's behalf, concluding it would be inappropriate for the Interior Department to get involved in the FDIC's business. Friedman said Maxxam raised the issue about the FDIC case because the action should never have been filed against Hurwitz who had undergone a lengthy, politically-motivated and ultimately unproved investigation by the Clinton Administration and a federal agency that violated its own rules in bringing the action. Hurwitz was not liable for the failure of United Savings because neither he nor Maxxam had controlling interest in United Financial—the holding company that had a minority interest in United Savings—therefore neither Hurwitz nor Maxxam had any legal authority to control the capital levels at the thrift.
At the time the Garamendi negotiations were underway, the Rose Foundation for Communities and the Government and several other environmentalist groups managed to convince a federal court that Pacific Lumber and a neighboring lumbering camp, Elk River Timber Company, had both violated the Endangered Species Act by logging pristine forests that sheltered the spotted owl. The federal court issued an injunction forbidding either Elk River Timber or Pacific Lumber from harvesting their land. Nine times the environmentalists filed suit in federal court. Nine times the court issued injunctions forbidding the lumber companies from cutting trees on their own land due to violations of the Endangered Species Act.
(Author's note: While I did not find documents to support my belief that Hurwitz, Friedman and Keeton were very bluntly, off-the-record, advised that they might as well sell the Headwater Grove to the environmentalists and get something for their buck because it was unlikely that, anytime in the foreseeable future, they would be able to harvest any lumber from that area since the Headwaters Forest was home to the spotted owl.)
In 1999 Hurwitz caved in and sold 10,000 acres of Headwaters Forest land to the Department of the Interior for $480 million. The deal was brokered by Sen. Diane Feinstein to preserve the old growth giant coastlal redwoods. In 2002 the FDIC dropped its 250 million action against Hurwitz when the OTM settled their $821 million case under an agreement where Hurwitz paid $206 thousand, made no admissions of wrongdoing, and agreed not to discuss the suit or the settlement.
But in his settlement, Hurwitz never agreed not to file suit against the government. He immediately sued the FDIC, by asking US District Court Judge Lynn Hughes (the presiding judge in the government's case) to award him $72 million in damages to cover his costs to fight not only the FDIC charges, but the costs associated with fighting to keep the government from seizing his redwood trees—and fighting frivolous lawsuits from the Rose Foundation, the Sierra Club, Greenpeace, Earth First! and scores of other green groups who lined up to take their best shot at Maxxam in court while Maxxam and Hurwitz were distracted with the FDIC lawsuit.
Don't miss the concuding Part 2 "whodunnit" to understand how our fine justice system really works.
© 2005 Jon C. Ryter - All Rights Reserved
DEBT FOR TREES
PART 2
By Jon Christian Ryter September 1, 2005 NewsWithViews.com
In 1999 Charles Hurwitz caved in and sold 10,000 acres of Headwaters Forest land to the Department of the Interior for $480 million. The deal was brokered by Sen. Diane Feinstein to preserve the old growth giant coastlal redwoods. In 2002 the FDIC dropped its 250 million action against Hurwitz when the OTM settled their $821 million case under an agreement where Hurwitz paid $206 thousand, made no admissions of wrongdoing, and agreed not to discuss the suit or the settlement.
But in his settlement, Hurwitz never agreed not to file suit against the government. He immediately sued the FDIC, by asking US District Court Judge Lynn Hughes (the presiding judge in the government's case) to award him $72 million in damages to cover his costs to fight not only the FDIC charges, but the costs associated with fighting to keep the government from seizing his redwood trees—and fighting frivolous lawsuits from the Rose Foundation, the Sierra Club, Greenpeace, Earth First! and scores of other green groups who lined up to take their best shot at Maxxam in court while Maxxam and Hurwitz were distracted with the FDIC lawsuit.
Hurwitz, through his lawyers, claimed that the Clinton Administration's FDIC [a] improperly funded another government agency's investigative witch hunt against Maxxam on the same matter; and, [b] his suite alleged that the Clinton Administration used bogus lawsuits in an attempt to force him to surrender over a billion dollars worth of prime coastal redwood trees to settle bogus claims against him and his company.
On Tuesday, August 23, 2005 US District Court Judge Lynn Nettleton Hughes issued his decision in FDIC v Hurwitz. It was a scathing denunciation of a government, pressured by radical environmentalist, to railroad an innocent man solely to steal his land for special interest extremists. In what is now the largest judgment against a federal agency ever awarded, Hughes ordered the FDIC to pay Hurwitz $72.3 million. In his 133-page decision, Hughes compared the federal investigations of Hurwitz and Maxxam to "...secret society of extortionists [that had practiced] craven submission [when faced with pressure from the office of the Vice President of the United States and] the green groups to cause him pain." Hughes said Hurwitz was the victim of a vindictive and politically-motivated federal agency. Hughes referred to the ordeal Hurwitz was forced to endure in terms of the Boston Tea Party, writing that "...Sam Adams would say that somebody needs to dump the FDIC's tea overboard." Hughes found, in his decision, that the FDIC, in close concert with environmental groups, sued Hurwitz to pressure him into a "debt-for-nature" swap, in effect giving the government about a billion dollars worth of trees in exchange for his supposed liability in the failure of the United Savings Association of Texas.
Paul Mason, a lobbyist and green activist for the Sierra Club summed up the view of the environmentalist movement when he noted that Judge Hughes had been hostile to the government's case against Hurwitz from the beginning. "To state that the environmental community was steering the case," Mason told the media, "would strongly overstate the influence we had with the federal government."
The question is, who's telling the truth and who's lying? That's the part of the story you won't read in your local newspaper this evening—nor will you see it on Fox News. The chronology of events is not deeply hidden. A Google search will bring you most of the headlines. A little digging will give you the rest.
For the environmentalists to even suggest that not only were they not steering the Hurwitz case, but that they hadn't engineered it by persuading Vice President Al Gore, Interior Secretary Bruce Babbitt and other bureaucrats in the Clinton Administration to run interference for them in filing a lawsuit for damages against Maxxam that would force Hurwitz to agree to a "debt-for-nature" swap to alleviate his liability in the failure of United Savings Association of Texas—when the FDIC and the Clinton Justice Department knew he was not legally culpable for the failure of the S&L.
The radical environmentalist Earth First! hatched up the scheme for the FDIC to sue Hurwitz for the failure shortly after the co-presidency of Bill and Hillary Clinton descended on Washington, DC. In the usual fashion of the green extremists, Earth First! revealed its idea in a Spring, 1993 demonstration in front of the FDIC, demanding that the government take the old-growth redwoods that belonged to Pacific Lumber Company to settle any claims the FDIC should have with another Hurwitz company, the failed S&L, United Savings Association of Texas. Earth First! later insisted that their suggestion was politely offered at that time only because of the fear that Hurwitz would destroy the thousand year old trees that shielded the habitat of the spotted owl and other endangered species that lived in the Headwaters Forest in Humboldt County, California.
From that demonstration in 1993, both the Clinton Administration and Congress became acutely aware of the Headwaters Forest, Charles Hurwitz, United Savings Association of Texas and the implied liability of Hurwitz, whom the environmentalists claimed raided the assets of United Savings to leverage Pacific Lumber. Shortly after the demonstration Greenpeace, the Sierra Club Legal Defense Fund and the Rose Foundation for Community and the Government began to leverage Congress and Mr. Environment—Al Gore, Jr. The Rose Foundation and the Sierra Club became fixtures on Capitol Hill as they made their way from one Congressional and Senatorial office to another, and from the FDIC to the Office of Thrift Management, to the White House and Blair House, asking for legislation that would both implicate and exonerate Hurwitz by arranging a debt-for-trees swap in which the FDIC would exchange Hurwitz's liability in United Savings for 57,000 to 76,000 acres of Headwaters Forest which would be placed in the public trust.
In 1994 Congressman Dan Hamburg [D-CA] introduced a bill in the House of Representatives that would authorize the US Forest Service to "negotiate" the transfer of the Headwaters Forest under eminent domain to the US government and make it part of the Six Rivers National Forest. The bill passed in the House, but the Senate version of the bill, introduced by Barbara Boxer [D-CA], never made it out of committee and onto the Senate floor for a vote. When the GOP Revolution in November of 1994 pushed the Democrats out of all of the committee chairs in both the House and Senate, the odds of enacting the Headwaters bill was greatly diminished. The environmentalists reverted to the suggestion made by Earth First!—convince the FDIC to file suit against Hurwitz and then swap the Headwaters for a release from liability on United Savings Association of Texas.
It was after the defeat of The Hamburg-Boxer Act that Jill Ratner, the lawyer activist head of the Rose Foundation intensified her letter-writing campaign to entice FDIC Chairman Tigert-Helfer to file a lawsuit against Hurwitz and then do a debt-for-trees swap to settle the 1,000 year old redwood tree matter for all time. Ricki Tigert-Helfer replied to Ratner that the FDIC could not compel the defendants of any legal action to consider a debt-for-nature swap since they might decide to use other assets to satisfy their liability. It was obvious that the Bush-41 Administration clearly understood that minority shareholders in companies—unless they are board members—have no fiduciary control over the company, and thus can't be held liable for any capitalization shortfalls of the company. And, it was clear that, by the end of 1994 the Clinton Administration believed they could arbitrarily assign "fault," and in the Headwaters Forest matter, they had arbitrarily decided that Charles Hurwitz was culpable in the United Savings matter because the Sierra Club, Earth First!, Greenpeace and the Rose Foundation convinced the Clinton Administration—without any actual evidence to support their position—that Hurwitz had gutted United Savings Association and used what could be construed as stolen assets to buy Pacific Lumber. Thus, since ill-gotten gains paid for Pacific, it was only fitting to the environmentalists calling for it, that Pacific Lumber assets be used to satisfy the government's case against Hurwitz.
Ratner even raised the issue of debt-for-nature with Maxxam lawyers on several times. One one occasion, Maxxam spokesman Joshua Reiss dismissed Ratner's swap suggestion as a flawed premise since, he said, there is no debt to swap. Hurwitz, he told the media, had done nothing wrong. Since he did not possess controlling interest in United Savings, he had no legal authority to influence their policies.
John V. Thomas, associate general counsel for the FDIC wrote to a green activist, Larry Helbrook of Eleva, Wisconsin on August 23, 1994. Helbrook inquired about a possible debt-for-nature swap to protect the ancient Sequoia giants. Thomas responded, saying "We are mindful of the possibility that if Pacific Lumber's parent can be held liable for our losses, issues involving the redwood forests might be brought into play."
Shortly after she filed suit against Hurwitz, Tigert-Helfer wrote a letter to then US Congressman David E. Skaggs in which she said, in response to his question: "You may be assured that the government remains open to any appropriate settlement of this claim—including a debt-for-nature swap."
Throughout the last months of 1994 there was a flurry of high level meetings between the environmentalist lobbyists from Greenpeace, the Sierra Club, and the Rose Foundation, several liberal Congressmen and Senators, some high level Clinton Administration officials, and Vice President Al Gore who functioned as "control central" on the Hurwitz-Headwaters Forest matter. The high level meetings produced a compromise between the environmentalists and the Clinton Administration. The Al Gore emissary, Deputy Interior Secretary John Garamendi, was sent to Sacramento to meet with Hurwitz and his lawyers and negotiate the "surrender" of the Headwaters Forest.
For the environmentalists and former Clinton-Gore officials to claim they did not originate the debt-for-nature swap, or attempt to influence the filing of charges against Charles Hurwitz by the FDIC specifically to pressure him into settling the lawsuit by trading a billion dollars worth of redwood trees for a handful of spotted owls. Judge Lynn Hughes was right—the government lied. FDIC officials "...discarded the mantle of the American Republic for the clock of a secret society of extortionists. If the Vice President called, they responded. If a lobbyist called, they responded. They heeded every call but that of duty and honor."
FDIC spokesman David Barr said the agency will appeal the judgment. If the 5th Circuit Court knows how to do a Google search, without even holding a hearing, it will find enough material to uphold the opinion of Judge Hughes. If, on the other hand, the judges on the 5th Circuit believe that the Clinton-Gore Administration was an honest broker of justice, they will likely overrule one of the most intelligent decisions made by a US District Court Judge in 50 years.
Back to -----> Part 1
© 2005 Jon C. Ryter - All Rights Reserved
Order Jon Ryter's book "Whatever Happened to America?"
http://www.newswithviews.com/Ryter/jon99.htm
This is the link to this two part series. It works most of the time.
DEBT FOR TREES PART 1
from there you can link to PART 2.
Both are included below:
DEBT FOR TREES PART 1
By Jon Christian Ryter September 1, 2005 NewsWithViews.com
Houston financier and corporate raider Charles Hurwitz's problems began with the collapse of a little known Texas thrift in 1988, United Savings Association of Texas—only Hurwitz's purported complicity in the collapse of the savings and loan company never surfaced until about the time his company, MCO Holdings (which changed its name in 1995 to Maxxam, Inc.) assumed Pacific Lumber Company in 1986. Once the Pacific Lumber buyout was complete Hurwitz's problems began. But not from the US government— from environmentalists.
One of Pacific Lumber's most valuable assets was a stand of 1,000-plus year old coastal redwood trees in Humboldt County—in a 6,000 acre tract of ancient redwoods in the 90,000 acre Headwaters' Forest know as the Headwaters Grove. Each of the 300 foot tall ancient giant redwoods have a commercial street value—as cut lumber—of at least $100,000. Hurwitz, who used junk bonds to finance his takeover of Pacific Lumber needed to liquidate some of the assets of the newly acquired company to pay down the debt.
Hurwitz became interested in Pacific Lumber when junk bond investment banker Drexel Burnham Lambert advised MCO that Pacific Lumber had made an overpriced offer to buy back its own stock in 1984, causing MCO to take a closer look at the company as a potential hostile takeover since Pacific was not interested in suitors. And the closer Hurwitz looked, the better Pacific Lumber looked. Finally, in October, 1985 he went after it, assuming control of the company in 1986.
Environmentalists feared Hurwitz would clear-cut the Headwaters Grove of its ancient treasures to pay for the takeover. In reality, Hurwitz already planned to sell off specific assets of Pacific Lumber to pay for the takeover—and the Headwaters Grove was not part of his thinking. However, MCO Holdings, which was extremely leveraged, still needed to generate a revenue stream, and planned to clear-cut up to a thousand acres of Pacific Lumber's expansive reserve of Douglas pines, spruce, coastal redwoods and other timber species which the company owned. Within a matter of months, Hurwitz doubled Pacific Lumber's relatively conservative lumber harvesting practices. That convinced the greens that a land-stripper had taken over the 117 year old company.
Pacific Lumber was an institution in northern California, and had been since 1869. It was the largest employer in Humboldt County, owning around 194,000 acres of prime timberland worth billions of dollars at retail. Yet, it was not as profitable as it could have been, or should have been, due to environmentalists who did everything possible to hamstring logging operations for over a decade. The constant inference of Pacific's logging operation by radical green groups made Pacific Lumber "easy pickings" for any corporate raider. When Hurwitz took it over it wasn't long before green groups like Earth First!, the Sierra Club and Greenpeace were targeting Hurwitz, who became the "scorched earth" villain.
In January 1995, Humboldt environmentalist activist Robert Martel filled a lawsuit in US District Court against Maxxam, Industries seeking $1.6 billion to cover the losses suffered by Maxxam's bankrupt S&L, United Savings Association of Texas plus an additional $4.8 billion in punitive damages on behalf of the American taxpayers. Because Martel represented neither the government nor the depositors of United Savings, there was no legal basis for his filing. But, his lawsuit opened Pandora's box. When the federal court—which should never have accepted the action in the first placed—ruled against him, Martel appealed that court's decision to the 5th Circuit Court of Appeals. The appellate court not only rejected Martel's appeal, it ordered him to pay Maxxam's legal fees of more than $110,000, saying that Martel's case was "frivolous"
In August of 1995, FDIC Chairman Ricki Tigert-Helfer filed the first of two "recovery" lawsuits in US District Court in Houston. The action, FDIC v Hurwitz, sought $250 million in damages—not from Maxxam (as MCO Holding had been renamed)—but from Hurwitz personally. When she filed her suit, Tigert-Helfer asked the Office of Thrift Management to investigate Charles Hurwitz and Maxxam for wrongdoing. In December, 1995 the Office of Thrift Management filed 13 claims against the defendants of its own lawsuit—against Hurwitz, Maxxam, two other Maxxam companies: Federated Development Company, United Financial Group (which was the parent company of United Savings), and the former and current directors of the S&L. The OTM sought $821 million in damages. The FDIC and the OTM both alleged that Hurwitz's business dealings with Drexel Burnham Lambert contributed significantly to the thrift's failure by not keeping it properly capitalized. They also alleged that Hurwitz "raided" the assets of United Savings to purchase Pacific Lumber, making Hurwitz personally liable for the $1.6 billion the OTM claims United Savings lost.
From the time the dual actions were filed by the FDIC and the OTM, Hurwitz's lawyer, Richard Keeton, was approached by various environmental groups suggesting that the government would entertain a "debt-for-trees" swap. Hurwitz would get to walk away from the FDIC and OTM charges if he agreed to allow the old stand of 300' tall redwoods in Headwaters Grove be deeded to the US government. The government would make the Headwaters redwoods part of the Six Rivers National Forest. In the early 1990s, Howard Hughes' estate engaged in a "debt for nature" swap when the estate traded some wetlands near the Los Angeles Airport to settle a tax bill owed the State of California. Several third world countries swapped land that US environmentalists thought should be protected for the debt they owed the United States. Bolivia traded tropical forests to clear their debt. Land swaps were also done with the Philippines and several other nations as well.
In February, 1997 Deputy Interior Secretary John Garamendi approached Maxxam to arrange for the acquisition of the Headwater Grove. Maxxam's general counsel, J. Kent Friedman, told the Clinton Administration official that Maxxam would consider selling the Headwater Grove to the Interior Department—but only on the condition that the government drop its FDIC lawsuit. "We want this case to go away," Friedman said.
Garamendi reported "...Hurwitz brought that to the table numerous times," but he added, he refused to intervene on Hurwitz's behalf, concluding it would be inappropriate for the Interior Department to get involved in the FDIC's business. Friedman said Maxxam raised the issue about the FDIC case because the action should never have been filed against Hurwitz who had undergone a lengthy, politically-motivated and ultimately unproved investigation by the Clinton Administration and a federal agency that violated its own rules in bringing the action. Hurwitz was not liable for the failure of United Savings because neither he nor Maxxam had controlling interest in United Financial—the holding company that had a minority interest in United Savings—therefore neither Hurwitz nor Maxxam had any legal authority to control the capital levels at the thrift.
At the time the Garamendi negotiations were underway, the Rose Foundation for Communities and the Government and several other environmentalist groups managed to convince a federal court that Pacific Lumber and a neighboring lumbering camp, Elk River Timber Company, had both violated the Endangered Species Act by logging pristine forests that sheltered the spotted owl. The federal court issued an injunction forbidding either Elk River Timber or Pacific Lumber from harvesting their land. Nine times the environmentalists filed suit in federal court. Nine times the court issued injunctions forbidding the lumber companies from cutting trees on their own land due to violations of the Endangered Species Act.
(Author's note: While I did not find documents to support my belief that Hurwitz, Friedman and Keeton were very bluntly, off-the-record, advised that they might as well sell the Headwater Grove to the environmentalists and get something for their buck because it was unlikely that, anytime in the foreseeable future, they would be able to harvest any lumber from that area since the Headwaters Forest was home to the spotted owl.)
In 1999 Hurwitz caved in and sold 10,000 acres of Headwaters Forest land to the Department of the Interior for $480 million. The deal was brokered by Sen. Diane Feinstein to preserve the old growth giant coastlal redwoods. In 2002 the FDIC dropped its 250 million action against Hurwitz when the OTM settled their $821 million case under an agreement where Hurwitz paid $206 thousand, made no admissions of wrongdoing, and agreed not to discuss the suit or the settlement.
But in his settlement, Hurwitz never agreed not to file suit against the government. He immediately sued the FDIC, by asking US District Court Judge Lynn Hughes (the presiding judge in the government's case) to award him $72 million in damages to cover his costs to fight not only the FDIC charges, but the costs associated with fighting to keep the government from seizing his redwood trees—and fighting frivolous lawsuits from the Rose Foundation, the Sierra Club, Greenpeace, Earth First! and scores of other green groups who lined up to take their best shot at Maxxam in court while Maxxam and Hurwitz were distracted with the FDIC lawsuit.
Don't miss the concuding Part 2 "whodunnit" to understand how our fine justice system really works.
© 2005 Jon C. Ryter - All Rights Reserved
DEBT FOR TREES
PART 2
By Jon Christian Ryter September 1, 2005 NewsWithViews.com
In 1999 Charles Hurwitz caved in and sold 10,000 acres of Headwaters Forest land to the Department of the Interior for $480 million. The deal was brokered by Sen. Diane Feinstein to preserve the old growth giant coastlal redwoods. In 2002 the FDIC dropped its 250 million action against Hurwitz when the OTM settled their $821 million case under an agreement where Hurwitz paid $206 thousand, made no admissions of wrongdoing, and agreed not to discuss the suit or the settlement.
But in his settlement, Hurwitz never agreed not to file suit against the government. He immediately sued the FDIC, by asking US District Court Judge Lynn Hughes (the presiding judge in the government's case) to award him $72 million in damages to cover his costs to fight not only the FDIC charges, but the costs associated with fighting to keep the government from seizing his redwood trees—and fighting frivolous lawsuits from the Rose Foundation, the Sierra Club, Greenpeace, Earth First! and scores of other green groups who lined up to take their best shot at Maxxam in court while Maxxam and Hurwitz were distracted with the FDIC lawsuit.
Hurwitz, through his lawyers, claimed that the Clinton Administration's FDIC [a] improperly funded another government agency's investigative witch hunt against Maxxam on the same matter; and, [b] his suite alleged that the Clinton Administration used bogus lawsuits in an attempt to force him to surrender over a billion dollars worth of prime coastal redwood trees to settle bogus claims against him and his company.
On Tuesday, August 23, 2005 US District Court Judge Lynn Nettleton Hughes issued his decision in FDIC v Hurwitz. It was a scathing denunciation of a government, pressured by radical environmentalist, to railroad an innocent man solely to steal his land for special interest extremists. In what is now the largest judgment against a federal agency ever awarded, Hughes ordered the FDIC to pay Hurwitz $72.3 million. In his 133-page decision, Hughes compared the federal investigations of Hurwitz and Maxxam to "...secret society of extortionists [that had practiced] craven submission [when faced with pressure from the office of the Vice President of the United States and] the green groups to cause him pain." Hughes said Hurwitz was the victim of a vindictive and politically-motivated federal agency. Hughes referred to the ordeal Hurwitz was forced to endure in terms of the Boston Tea Party, writing that "...Sam Adams would say that somebody needs to dump the FDIC's tea overboard." Hughes found, in his decision, that the FDIC, in close concert with environmental groups, sued Hurwitz to pressure him into a "debt-for-nature" swap, in effect giving the government about a billion dollars worth of trees in exchange for his supposed liability in the failure of the United Savings Association of Texas.
Paul Mason, a lobbyist and green activist for the Sierra Club summed up the view of the environmentalist movement when he noted that Judge Hughes had been hostile to the government's case against Hurwitz from the beginning. "To state that the environmental community was steering the case," Mason told the media, "would strongly overstate the influence we had with the federal government."
The question is, who's telling the truth and who's lying? That's the part of the story you won't read in your local newspaper this evening—nor will you see it on Fox News. The chronology of events is not deeply hidden. A Google search will bring you most of the headlines. A little digging will give you the rest.
For the environmentalists to even suggest that not only were they not steering the Hurwitz case, but that they hadn't engineered it by persuading Vice President Al Gore, Interior Secretary Bruce Babbitt and other bureaucrats in the Clinton Administration to run interference for them in filing a lawsuit for damages against Maxxam that would force Hurwitz to agree to a "debt-for-nature" swap to alleviate his liability in the failure of United Savings Association of Texas—when the FDIC and the Clinton Justice Department knew he was not legally culpable for the failure of the S&L.
The radical environmentalist Earth First! hatched up the scheme for the FDIC to sue Hurwitz for the failure shortly after the co-presidency of Bill and Hillary Clinton descended on Washington, DC. In the usual fashion of the green extremists, Earth First! revealed its idea in a Spring, 1993 demonstration in front of the FDIC, demanding that the government take the old-growth redwoods that belonged to Pacific Lumber Company to settle any claims the FDIC should have with another Hurwitz company, the failed S&L, United Savings Association of Texas. Earth First! later insisted that their suggestion was politely offered at that time only because of the fear that Hurwitz would destroy the thousand year old trees that shielded the habitat of the spotted owl and other endangered species that lived in the Headwaters Forest in Humboldt County, California.
From that demonstration in 1993, both the Clinton Administration and Congress became acutely aware of the Headwaters Forest, Charles Hurwitz, United Savings Association of Texas and the implied liability of Hurwitz, whom the environmentalists claimed raided the assets of United Savings to leverage Pacific Lumber. Shortly after the demonstration Greenpeace, the Sierra Club Legal Defense Fund and the Rose Foundation for Community and the Government began to leverage Congress and Mr. Environment—Al Gore, Jr. The Rose Foundation and the Sierra Club became fixtures on Capitol Hill as they made their way from one Congressional and Senatorial office to another, and from the FDIC to the Office of Thrift Management, to the White House and Blair House, asking for legislation that would both implicate and exonerate Hurwitz by arranging a debt-for-trees swap in which the FDIC would exchange Hurwitz's liability in United Savings for 57,000 to 76,000 acres of Headwaters Forest which would be placed in the public trust.
In 1994 Congressman Dan Hamburg [D-CA] introduced a bill in the House of Representatives that would authorize the US Forest Service to "negotiate" the transfer of the Headwaters Forest under eminent domain to the US government and make it part of the Six Rivers National Forest. The bill passed in the House, but the Senate version of the bill, introduced by Barbara Boxer [D-CA], never made it out of committee and onto the Senate floor for a vote. When the GOP Revolution in November of 1994 pushed the Democrats out of all of the committee chairs in both the House and Senate, the odds of enacting the Headwaters bill was greatly diminished. The environmentalists reverted to the suggestion made by Earth First!—convince the FDIC to file suit against Hurwitz and then swap the Headwaters for a release from liability on United Savings Association of Texas.
It was after the defeat of The Hamburg-Boxer Act that Jill Ratner, the lawyer activist head of the Rose Foundation intensified her letter-writing campaign to entice FDIC Chairman Tigert-Helfer to file a lawsuit against Hurwitz and then do a debt-for-trees swap to settle the 1,000 year old redwood tree matter for all time. Ricki Tigert-Helfer replied to Ratner that the FDIC could not compel the defendants of any legal action to consider a debt-for-nature swap since they might decide to use other assets to satisfy their liability. It was obvious that the Bush-41 Administration clearly understood that minority shareholders in companies—unless they are board members—have no fiduciary control over the company, and thus can't be held liable for any capitalization shortfalls of the company. And, it was clear that, by the end of 1994 the Clinton Administration believed they could arbitrarily assign "fault," and in the Headwaters Forest matter, they had arbitrarily decided that Charles Hurwitz was culpable in the United Savings matter because the Sierra Club, Earth First!, Greenpeace and the Rose Foundation convinced the Clinton Administration—without any actual evidence to support their position—that Hurwitz had gutted United Savings Association and used what could be construed as stolen assets to buy Pacific Lumber. Thus, since ill-gotten gains paid for Pacific, it was only fitting to the environmentalists calling for it, that Pacific Lumber assets be used to satisfy the government's case against Hurwitz.
Ratner even raised the issue of debt-for-nature with Maxxam lawyers on several times. One one occasion, Maxxam spokesman Joshua Reiss dismissed Ratner's swap suggestion as a flawed premise since, he said, there is no debt to swap. Hurwitz, he told the media, had done nothing wrong. Since he did not possess controlling interest in United Savings, he had no legal authority to influence their policies.
John V. Thomas, associate general counsel for the FDIC wrote to a green activist, Larry Helbrook of Eleva, Wisconsin on August 23, 1994. Helbrook inquired about a possible debt-for-nature swap to protect the ancient Sequoia giants. Thomas responded, saying "We are mindful of the possibility that if Pacific Lumber's parent can be held liable for our losses, issues involving the redwood forests might be brought into play."
Shortly after she filed suit against Hurwitz, Tigert-Helfer wrote a letter to then US Congressman David E. Skaggs in which she said, in response to his question: "You may be assured that the government remains open to any appropriate settlement of this claim—including a debt-for-nature swap."
Throughout the last months of 1994 there was a flurry of high level meetings between the environmentalist lobbyists from Greenpeace, the Sierra Club, and the Rose Foundation, several liberal Congressmen and Senators, some high level Clinton Administration officials, and Vice President Al Gore who functioned as "control central" on the Hurwitz-Headwaters Forest matter. The high level meetings produced a compromise between the environmentalists and the Clinton Administration. The Al Gore emissary, Deputy Interior Secretary John Garamendi, was sent to Sacramento to meet with Hurwitz and his lawyers and negotiate the "surrender" of the Headwaters Forest.
For the environmentalists and former Clinton-Gore officials to claim they did not originate the debt-for-nature swap, or attempt to influence the filing of charges against Charles Hurwitz by the FDIC specifically to pressure him into settling the lawsuit by trading a billion dollars worth of redwood trees for a handful of spotted owls. Judge Lynn Hughes was right—the government lied. FDIC officials "...discarded the mantle of the American Republic for the clock of a secret society of extortionists. If the Vice President called, they responded. If a lobbyist called, they responded. They heeded every call but that of duty and honor."
FDIC spokesman David Barr said the agency will appeal the judgment. If the 5th Circuit Court knows how to do a Google search, without even holding a hearing, it will find enough material to uphold the opinion of Judge Hughes. If, on the other hand, the judges on the 5th Circuit believe that the Clinton-Gore Administration was an honest broker of justice, they will likely overrule one of the most intelligent decisions made by a US District Court Judge in 50 years.
Back to -----> Part 1
© 2005 Jon C. Ryter - All Rights Reserved
Order Jon Ryter's book "Whatever Happened to America?"
http://www.newswithviews.com/Ryter/jon99.htm
HC - File suit, fail and repeat as needed in Hurwitz case
File suit, fail and repeat as needed in Hurwitz case
By LOREN STEFFY
Oct. 18, 2006, 12:05PM Copyright 2006 Houston Chronicle
Blog: More on the FDIC and Charles Hurwitz, including filings and ruling at
http://blogs.chron.com/lorensteffy/2006/10/sanctioning_fut.html
IF at first you don't succeed, spend more taxpayer money.
That seems to be the attitude of the Federal Deposit Insurance Corp. in its relentless pursuit of Houston financier Charles Hurwitz.
Two weeks ago, the FDIC filed an appeal in its long-running battle with Hurwitz. The 90-page "brief" basically rehashes the same allegations that the FDIC has made for years. Two judges have ruled that those claims lack merit.
It's as if the FDIC believes that repetition is a substitute for proof.
"It really sounds like they're out on the street corner saying, 'Please believe us,' " says J.C. Nickens, Hurwitz's attorney.
It's unusual for an appeals motion to reargue the facts of a case, and such tactics rarely succeed. Nickens describes the FDIC's filing as having "very little law, lots of complaints about the factual findings."
That's not surprising. More than a year ago, U.S. District Judge Lynn Hughes issued a scathing rebuke of the FDIC's case and awarded Hurwitz $72 million in sanctions, probably the biggest fine a federal agency has ever been ordered to pay an individual.
Hughes likened the agency's tactics to those of the Mafia and accused several FDIC attorneys of perjury.
FDIC spokesman David Barr says the agency disagrees with the size of the sanctions and Hughes' findings, adding that the FDIC concluded that Hurwitz's motion for sanctions "was frivolous."
In its motion, the FDIC basically claims that Hughes is a dunderhead who got
all the facts of the case confused.
The FDIC's lawsuit stems from the failure in 1988 of United Savings Association of Texas, a Houston thrift indirectly controlled by Hurwitz's Maxxam Corp. The federal bailout cost taxpayers $1.6 billion.
The FDIC sued Hurwitz in 1995, claiming he should have done more to prevent the collapse.
The case became mired in a scheme to settle the FDIC's claims by getting Hurwitz to surrender 7,500 acres of old-growth redwoods in California owned by another Maxxam subsidiary, Pacific Lumber Co.
Hurwitz long has contended — and documents unearthed in a congressional investigation support him — that the FDIC was a pawn in a Clinton administration ploy to appease environmentalists by grabbing the redwoods without paying for them.
The FDIC vehemently denies that it was involved in any plan to get the trees and in its brief says that the plan was Hurwitz's idea.
A congressional investigation in 2000, though, found that the so-called debt-for-nature swap was first proposed by environmentalists in California, and that the FDIC pressed its saving and loan case against Hurwitz even though its own lawyers thought the agency was likely to lose.
Time has come and gone
What the FDIC doesn't seem to get, and what it hasn't gotten for many years now, is that it's way past time to argue the facts of this case.
In 2001, an administrative law judge issued a ruling in which he said the case was so flimsy it never should have been filed.
The FDIC, like some legal equivalent of Emily Litella, essentially said "never mind" and withdrew a parallel case that it had pressed in federal court for seven years.
By that point, Hurwitz was so outraged by the government's conduct that he asked Hughes to sanction the FDIC, which Hughes did.
"There's been two judges that have found against them," Nickens says of the FDIC.
Nearly 20 years later
So now the case could be headed back to court yet again, though it would probably be next spring — almost 20 years after United Savings' failure — if the appeals court hears the arguments. The burning question is why.
If its original savings and loan case had any merit, the FDIC had two chances to prove it. It came up empty twice.
Now, it hopes the third time will be a charm. It's easy to hope with other people's money.
The Hurwitz case has become a legal sinkhole, one from which the FDIC cannot hope to emerge. Even if it persuades the appeals court to throw out or lessen the sanctions, the FDIC's shoddy handling of the case remains.
It botched the thing that matters most in court: proving its claims.
While it's asking for a review of the facts, there's one the FDIC has overlooked: It has failed and failed again. The third time is no charm, just more money wasted on a case the FDIC has known for a long time it can't win.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy at chron.com. His blog is at http://blogs.chron.com/lorensteffy/.
By LOREN STEFFY
Oct. 18, 2006, 12:05PM Copyright 2006 Houston Chronicle
Blog: More on the FDIC and Charles Hurwitz, including filings and ruling at
http://blogs.chron.com/lorensteffy/2006/10/sanctioning_fut.html
IF at first you don't succeed, spend more taxpayer money.
That seems to be the attitude of the Federal Deposit Insurance Corp. in its relentless pursuit of Houston financier Charles Hurwitz.
Two weeks ago, the FDIC filed an appeal in its long-running battle with Hurwitz. The 90-page "brief" basically rehashes the same allegations that the FDIC has made for years. Two judges have ruled that those claims lack merit.
It's as if the FDIC believes that repetition is a substitute for proof.
"It really sounds like they're out on the street corner saying, 'Please believe us,' " says J.C. Nickens, Hurwitz's attorney.
It's unusual for an appeals motion to reargue the facts of a case, and such tactics rarely succeed. Nickens describes the FDIC's filing as having "very little law, lots of complaints about the factual findings."
That's not surprising. More than a year ago, U.S. District Judge Lynn Hughes issued a scathing rebuke of the FDIC's case and awarded Hurwitz $72 million in sanctions, probably the biggest fine a federal agency has ever been ordered to pay an individual.
Hughes likened the agency's tactics to those of the Mafia and accused several FDIC attorneys of perjury.
FDIC spokesman David Barr says the agency disagrees with the size of the sanctions and Hughes' findings, adding that the FDIC concluded that Hurwitz's motion for sanctions "was frivolous."
In its motion, the FDIC basically claims that Hughes is a dunderhead who got
all the facts of the case confused.
The FDIC's lawsuit stems from the failure in 1988 of United Savings Association of Texas, a Houston thrift indirectly controlled by Hurwitz's Maxxam Corp. The federal bailout cost taxpayers $1.6 billion.
The FDIC sued Hurwitz in 1995, claiming he should have done more to prevent the collapse.
The case became mired in a scheme to settle the FDIC's claims by getting Hurwitz to surrender 7,500 acres of old-growth redwoods in California owned by another Maxxam subsidiary, Pacific Lumber Co.
Hurwitz long has contended — and documents unearthed in a congressional investigation support him — that the FDIC was a pawn in a Clinton administration ploy to appease environmentalists by grabbing the redwoods without paying for them.
The FDIC vehemently denies that it was involved in any plan to get the trees and in its brief says that the plan was Hurwitz's idea.
A congressional investigation in 2000, though, found that the so-called debt-for-nature swap was first proposed by environmentalists in California, and that the FDIC pressed its saving and loan case against Hurwitz even though its own lawyers thought the agency was likely to lose.
Time has come and gone
What the FDIC doesn't seem to get, and what it hasn't gotten for many years now, is that it's way past time to argue the facts of this case.
In 2001, an administrative law judge issued a ruling in which he said the case was so flimsy it never should have been filed.
The FDIC, like some legal equivalent of Emily Litella, essentially said "never mind" and withdrew a parallel case that it had pressed in federal court for seven years.
By that point, Hurwitz was so outraged by the government's conduct that he asked Hughes to sanction the FDIC, which Hughes did.
"There's been two judges that have found against them," Nickens says of the FDIC.
Nearly 20 years later
So now the case could be headed back to court yet again, though it would probably be next spring — almost 20 years after United Savings' failure — if the appeals court hears the arguments. The burning question is why.
If its original savings and loan case had any merit, the FDIC had two chances to prove it. It came up empty twice.
Now, it hopes the third time will be a charm. It's easy to hope with other people's money.
The Hurwitz case has become a legal sinkhole, one from which the FDIC cannot hope to emerge. Even if it persuades the appeals court to throw out or lessen the sanctions, the FDIC's shoddy handling of the case remains.
It botched the thing that matters most in court: proving its claims.
While it's asking for a review of the facts, there's one the FDIC has overlooked: It has failed and failed again. The third time is no charm, just more money wasted on a case the FDIC has known for a long time it can't win.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy at chron.com. His blog is at http://blogs.chron.com/lorensteffy/.
HC - It seems like Charles Hurwitz just can't catch a break
It seems like Charles Hurwitz just can't catch a break
Business: Loren Steffy
Jan. 23, 2007, 11:13PM Copyright 2007 Houston Chronicle
Victory seems to forever elude Charles Hurwitz.
In 1999, he hammered out an agreement with California and federal officials to preserve old-growth redwood trees while allowing his logging company, Pacific Lumber, to cut enough new-growth trees to make a profit.
The deal, known as the Headwaters Agreement, was supposed to broker peace between Hurwitz and environmental groups that opposed his company's logging operations.
More importantly, it should have been a model for how private industry can work with other groups to preserve the environment.
Last week, Pacific Lumber filed for bankruptcy, strangled by new regulations made outside the agreement.
"We were dealt a hand where we couldn't do anything," Hurwitz told me Monday. "It's a pure breach of contract."
Regional water boards, which weren't included in the Headwaters Agreement and therefore argue they aren't bound by it, ruled that runoff from Palco's logging was affecting rivers and streams in Northern California's scenic Humboldt County.
The boards imposed new restrictions.
Palco's timber harvest has fallen steadily as a result, to 145.5 million board feet in 2005 from 166.3 million in 2003, according to its annual filings with the Securities and Exchange Commission.
At the same time, the quality of the harvest shifted to lower grades of redwood and Douglas fir, which sell at a lower price.
The company wasn't making enough money to service its debt, part of which was incurred when Palco refurbished its mills for the newer growth trees as specified in the 1999 deal.
Over the years, the battle between Hurwitz and the environmentalists has grown personal. The protesters bristle at the thought of a single tree felled by Hurwitz's hand.
In a news release, Karen Pickett, director of one such group, the Bay Area Coalition for Headwaters, summed up the filing this way:
"The one thing we can look forward to ultimately is a Maxxam-free and Hurwitz-free company."
Unattractive
Then what?
What chance does Palco have for survival? It can't, under the latest environmental restrictions, produce enough lumber to turn a profit, whether it's owned by Hurwitz or someone else.
Bankruptcy may eliminate some of the company's debt, but it won't make Palco attractive to outside buyers. The threat of unending tree sittings and sabotage to logging operations makes Palco an unappealing purchase.
Hurwitz's adversaries spin a heartwarming myth about returning Palco to its days as an ecofriendly, family-run logging company.
But returning Palco to its old style of operations also returns it to the reality that left it vulnerable to Hurwitz's takeover 20 years ago. Palco was a mismanaged operation. Its executives hadn't done an accurate inventory of its timber lands in more than 30 years, and the "family" company's stock — which was traded on the New York Stock Exchange — languished.
In today's lumber industry, the margins have gotten thinner and the competition has increased. A return to Palco's past would promptly be followed by a return to bankruptcy court.
'Root of all evil'
For his part, Hurwitz has paid a hefty price for his ownership of Palco.
"This is the root of all evil for us," he said. "Everything that's bad in my business life has come out of this."
The environmental issues formed the basis for the Federal Deposit Insurance Corp.'s decadelong legal battle against Hurwitz. The lawsuit involved the failure of United Savings Association of Texas, but documents released as part of a congressional investigation revealed that regulators pursued a flimsy case to extract a settlement that would have included forfeiting Palco's old-growth redwood forest.
Hurwitz won, but the government appealed. With the case headed back to court, the victory is hollow. Palco's bankruptcy represents another eroded triumph, the collapse of the Headwaters Agreement.
The cycle remains unbroken and as vicious as it was before. Hurwitz and his foes in the environmental movement seem locked in perpetual conflict.
In many of these battles, Hurwitz has been right. But as last week's bankruptcy filing shows, you can be right and still lose.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy at chron.com. His blog is at http://blogs.chron.com/lorensteffy/.
Business: Loren Steffy
Jan. 23, 2007, 11:13PM Copyright 2007 Houston Chronicle
Victory seems to forever elude Charles Hurwitz.
In 1999, he hammered out an agreement with California and federal officials to preserve old-growth redwood trees while allowing his logging company, Pacific Lumber, to cut enough new-growth trees to make a profit.
The deal, known as the Headwaters Agreement, was supposed to broker peace between Hurwitz and environmental groups that opposed his company's logging operations.
More importantly, it should have been a model for how private industry can work with other groups to preserve the environment.
Last week, Pacific Lumber filed for bankruptcy, strangled by new regulations made outside the agreement.
"We were dealt a hand where we couldn't do anything," Hurwitz told me Monday. "It's a pure breach of contract."
Regional water boards, which weren't included in the Headwaters Agreement and therefore argue they aren't bound by it, ruled that runoff from Palco's logging was affecting rivers and streams in Northern California's scenic Humboldt County.
The boards imposed new restrictions.
Palco's timber harvest has fallen steadily as a result, to 145.5 million board feet in 2005 from 166.3 million in 2003, according to its annual filings with the Securities and Exchange Commission.
At the same time, the quality of the harvest shifted to lower grades of redwood and Douglas fir, which sell at a lower price.
The company wasn't making enough money to service its debt, part of which was incurred when Palco refurbished its mills for the newer growth trees as specified in the 1999 deal.
Over the years, the battle between Hurwitz and the environmentalists has grown personal. The protesters bristle at the thought of a single tree felled by Hurwitz's hand.
In a news release, Karen Pickett, director of one such group, the Bay Area Coalition for Headwaters, summed up the filing this way:
"The one thing we can look forward to ultimately is a Maxxam-free and Hurwitz-free company."
Unattractive
Then what?
What chance does Palco have for survival? It can't, under the latest environmental restrictions, produce enough lumber to turn a profit, whether it's owned by Hurwitz or someone else.
Bankruptcy may eliminate some of the company's debt, but it won't make Palco attractive to outside buyers. The threat of unending tree sittings and sabotage to logging operations makes Palco an unappealing purchase.
Hurwitz's adversaries spin a heartwarming myth about returning Palco to its days as an ecofriendly, family-run logging company.
But returning Palco to its old style of operations also returns it to the reality that left it vulnerable to Hurwitz's takeover 20 years ago. Palco was a mismanaged operation. Its executives hadn't done an accurate inventory of its timber lands in more than 30 years, and the "family" company's stock — which was traded on the New York Stock Exchange — languished.
In today's lumber industry, the margins have gotten thinner and the competition has increased. A return to Palco's past would promptly be followed by a return to bankruptcy court.
'Root of all evil'
For his part, Hurwitz has paid a hefty price for his ownership of Palco.
"This is the root of all evil for us," he said. "Everything that's bad in my business life has come out of this."
The environmental issues formed the basis for the Federal Deposit Insurance Corp.'s decadelong legal battle against Hurwitz. The lawsuit involved the failure of United Savings Association of Texas, but documents released as part of a congressional investigation revealed that regulators pursued a flimsy case to extract a settlement that would have included forfeiting Palco's old-growth redwood forest.
Hurwitz won, but the government appealed. With the case headed back to court, the victory is hollow. Palco's bankruptcy represents another eroded triumph, the collapse of the Headwaters Agreement.
The cycle remains unbroken and as vicious as it was before. Hurwitz and his foes in the environmental movement seem locked in perpetual conflict.
In many of these battles, Hurwitz has been right. But as last week's bankruptcy filing shows, you can be right and still lose.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy at chron.com. His blog is at http://blogs.chron.com/lorensteffy/.
1996 - Debt for nature
No bias here. Right. And of course, Hurwitz prevailed. The judge ruled that these guys used Mafia-like tactics to try to steal his land.
The Junk Bond Boss Meets the Ancient Sequoia
by Sharon Seidenstein
Ancient redwoods are priceless, from an environmentalist's point of view, but now green activists are trying to attach a price tag to the trees in order to preserve them. Texas millionaire Charles Hurwitz controls one of the last groves of old-growth redwoods in private hands, and environmentalists are lobbying for a ìdebt-for-natureî swap, with Hurwitz giving the trees to the U.S. government to pay back some of the $1.6 billion it spent bailing out a savings and loan Hurwitz managed into bankruptcy. Hurwitz says the government should either buy the land at fair market value, or get out of his way and let him log.
The direct action group Earth First! was the first to suggest that the Federal Deposit Insurance Corp. (FDIC) accept the redwoods of Pacific Lumber Company's Headwaters Forest in Northern California as payment for its 1988 bailout of depositors of Hurwitz's United Savings & Loan of Texas. In its usual fashion, Earth First! made the suggestion politely, at a 1993 demonstration at the FDIC's Washington, D.C. headquarters. A lot is at stake. The forest's Headwaters Grove is home to 1000-year-old redwoods standing hundreds of feet tall and shielding the habitats of the Northern spotted owl and other threatened and endangered species. It is a remnant of a forest that once blanketed the West Coast from Big Sur to southern Oregon, 96% of which has vanished under 150 years of liquidation logging.
Since the 1993 demonstration, Greenpeace, Sierra Club Legal Defense Fund, and Senators and Congresspeople have joined in the call for a ìdebt-for-natureî swap. They are appealing to the FDIC, the Office of Thrift Supervision (OTS) and the Clinton Administration to negotiate forgiveness of all or part of Hurwitz's debt to the federal government in exchange for 57,000 to 76,000 acres of Headwaters Forest, to be placed into public hands for long-term protection.
Debt-for-nature swaps, although rare in the United States, are not unheard of. In 1988, the Bank of America gave the state of California a nature preserve in the northern part of the state, three other properties and $27 million to clear a debt of about $54 million. In the early 1990s, Howard Hughes' estate swapped wetlands near the Los Angeles Airport in exchange for state taxes due. Outside the United States, Third World countries have traded ecologically valuable resources to relieve debt. This controversial version of the swap has helped protect tropical forests and grasslands in Bolivia, parks on the island of Palawan in the Philippines and a dozen other sites.
A swap of S&L debt for nature seems like a far-fetched plan if you ask Richard Keeton, Hurwitz's lawyer. He took time out from his busy schedule, fielding lawsuits from people seeking his client's cash, to tell me in a good-natured way that any debt-for-nature idea is ìbeating a dead horse.î Since his client is innocent of wrongdoing, he explained, there is no debt.
But it could be one of the FDIC's options, because of the convoluted and seemingly illegal connections Hurwitz created between his S&L and the go-go world of junk bond financing of the 1980s. Hurwitz bought the redwoods with his own swap ó the FDIC claims he buried his Texas S&L by having it buy junk bonds nobody wanted from Michael Milken's junk bond factory at Drexel, Burnham, Lambert in New York City. In turn, Milken helped Hurwitz engineer the takeover of Pacific Lumber and received his business issuing the junk bonds to pay for it.
The takeover has led to the equivalent of a work speedup in the forests. Because junk bonds are risky, or backed by assets of lower value, they burden the companies that issue them with high interest payments. To pay off the loans and interest on $600 million of junk bonds (and $300 million of bank loans) issued to pay for the company, Hurwitz has doubled Pacific Lumber's traditional rate of logging, sold off assets and allegedly raided the employee pension fund. Before the takeover, Pacific Lumber's relatively conservative harvesting practices had kept the forests healthy while other timber companies had destroyed theirs. But now the only thing that protects the Headwaters Grove from logging is an injunction won by an environmental group ó which is likely to end in September.
Junk Bonds for Sale Cheap
Last year, The Wall Street Journal described Hurwitz's United Savings and Loan of Texas as ìa highflying thrift heavily involved in junk bonds, arbitrage and speculative real estate plays.î Its failure was one of the most costly of the S&L bailouts of the 1980s, and centrally involved in the junk bond crisis that cost the U.S. government $134 billion to clean up.
The S&L's complicated financial transactions with Hurwitz's Maxxam Corporation essentially freed up its federally insured deposits to fund Maxxam's hostile takeover of Pacific Lumber. In effect, the government argued in a 1991 lawsuit against Michael Milken, Hurwitz transferred the assets of the federally-insured S&L to Maxxam (see box). This suggests that Hurwitz and Maxxam Corporation acquired Pacific Lumber and Headwaters Forest illegally, and the takeover of the lumber company ìled to the failure of the savings and loan and subsequent bailout,î as one environmental lawyer put it.
The Hurwitz camp categorically denies any wrongdoing. For one, they claim Hurwitz did not legally control United Savings & Loan. His lawyer also says that the FDIC cannot legally ìsecond guessî today actions taken according to Hurwitz's best business judgment in the 1980s.
If the Suit Fits. . . File It
Charles Hurwitz is a wealthy man. He is principal shareholder and CEO of Maxxam, Inc., whose assets were recently estimated at $3.8 billion. Hurwitz, or Maxxam, own Kaiser Aluminum, Federated Development Company of New York, Pacific Lumber and United Financial Group, the former holding company of United Savings and Loan of Texas. Pacific Lumber owns 189,000 acres in Northern California plus two mills. The acreage includes nearly all old-growth redwoods in private hands, some 6,000 acres. Prime old-growth redwood trees, like many of the 300-foot giants in Headwaters Grove, are worth $100,000 each at the lumber yard.
But apparently Hurwitz owes a lot of people a lot of money ó and many are finally going after it. He has faced three shareholder suits linked to Pacific Lumber alone: one an attempt to block the takeover of Pacific Lumber, the second by Pacific Lumber's original shareholders who felt they had been sold out for a ludicrous price, and a third challenging his raid of the employee pension fund. In 1995, the FDIC, the Office of Thrift Supervision and a Humboldt County community activist filed three new suits against him.
FDIC v. Hurwitz, filed in August 1995, seeks a $250 million damage award from the financier directly; Maxxam is not named in the suit. It accuses Hurwitz of having United Savings & Loan buy junk bonds from Drexel in exchange for the firm financing his takeovers. He then hid the true condition of the S&L ìby a pattern of deceptive financial reporting and balance sheet manipulation.î As it sunk deeper into a hole, the S&L increased its liabilities beyond legal limits, gambled on ìcumbersome real estate projects with no realistic chance of success and invested in complex financial instruments which the officers understood poorly and which resulted in staggering losses to the association.î
The FDIC suit
Under Hurwitz's control, the financial condition of United Savings steadily deteriorated. As the institution's financial health plummeted, Hurwitz, senior officers and United Savings board members serving at Hurwitz's request undertook greater and greater risks until both the officers and board members ìbecame entirely indifferent to losses the institution might incur,î the FDIC charged in its lawsuit against Hurwitz.
But according to FDIC chair Ricki Tigert-Helfer, the lawsuit cannot compel Maxxam, Pacific Lumber or their boards of directors to consider a debt-for-nature swap since they might decide to use other assets to satisfy their liability.
"Nevertheless," she added in a letter to Jill Ratner, a lawyer with the Rose Foundation for Communities and the Environment, "the FDIC is open to any appropriate settlement of its claim, including a debt-for-nature swap."
Additional pressure for a debt-for-nature swap came from yet another lawsuit, filed in January 1995 by Humboldt activist Robert Martel in U.S. District Court. It asks that Maxxam repay losses related to the Savings & Loan and that the judge award as much as $4.8 billion in damages on behalf of U.S. taxpayers.
Nearly a year later, in December 1995, the federal Office of Thrift Supervision filed 13 claims in administrative court charging Hurwitz, Maxxam, Federated Development and former and present directors of United Savings and Loan and its holding company with contributing to the failure of the S&L by turning it into ìa vehicle for speculative, highly leveraged, high risk investmentsî from a traditional home mortgage lender. In order to keep financing takeovers while maintaining its stated net worth, the thrift had to sell off its assets.
The suit seeks civil penalties of more than $800,000, restitution and a ban on the financiers from working in the banking industry. Among its other claims: that the financiers failed to properly maintain the minimum net worth of the S&L, which regulators had made a condition for approving the merger of United Savings & Loan and another thrift in 1983; violated a ban against affiliated parties engaging in transactions when the S&L bought junk bonds from Drexel, Burnham, Lambert; failed to maintain the minimum capital required by law; and paid out ìunsafe and unsoundî bonuses, settlements and severance packages to officers and directors.
Languishing and Dying in Congress
The U.S. Congress and the Clinton Administration are well aware of Headwaters and Hurwitz. In 1994, then-Representative Dan Hamburg (D-CA) introduced a bill in the House that authorized the U.S. Forest Service to begin negotiating with Pacific Lumber and other landowners of Headwaters to attach the forest to the Six Rivers National Forest. Although the bill eventually passed the House, the Senate version introduced by Barbara Boxer (D-CA) did not come up for a vote.
Hurwitz has a close ally in Frank Riggs (R-CA), the Congressman who defeated Hamburg in the Republican sweep of 1994. In June, Riggs was soundly rebuffed by his colleagues when he tried to win passage of a rider limiting enforcement of the Endangered Species Act on Pacific Lumber land. Perhaps Pacific Lumber was tired of being challenged by a local environmental group for its violations of environmental law. The Environmental Protection Information Center won nine suits that overturned Headwaters timber harvest plans.
The House also defeated a bill Riggs introduced that would have opened Headwaters to logging if negotiations between the Forest Service and the landowners fell through within an 18-month period.
Meanwhile, environmentalists, senators, representatives, Vice President Al Gore and high-level administrators in the departments of the Treasury and the Interior have been busy exchanging letters and holding meetings. One of the most hopeful meetings took place in February in Sacramento with Deputy Interior Secretary John Garamendi, California state officials and Hurwitz.
Searching for Cover
It's now June.
Pacific Lumber is busy logging. They have already cut a large swath through Headwaters Grove and logged significant portions of second-growth and residual-growth forest. Suits filed by the Environmental Protection Information Center have largely kept the chainsaws out of the most pristine groves, but the court injunction that currently protects the Headwaters Grove will probably be lifted in time for autumn logging.
The neighboring Elk River Timber has indicated it is willing to sell its land to public trust, but in the meanwhile is logging in a threatened species' habitat.
The Environmental Protection Information Center continues its legal battles, challenging a timber harvest plan along the South Fork Elk River drainage in a June lawsuit.
The FDIC suit against Hurwitz and his cohorts is pending in Judge Lynn Hughes' federal court in Houston, awaiting rulings on various motions, including one filed by Hurwitz's lawyers to dismiss the case. The Office of Thrift Supervision's suit is scheduled for a hearing in May 1997 in Houston, but OTS has not frozen Maxxam's assets, as it has the power to do if it thinks they will not be around once the lawsuit is over. Martel's suit seeking damages on behalf of U.S. taxpayers has been transferred, also to Texas.
One possible sign of hope: Deputy Interior Secretary Garamendi recently said that the federal and California governments are discussing with Hurwitz the acquisition of Headwaters Forest ó although they are not specifically talking about a debt-for-nature swap or settling the lawsuits. It will be several months before the public can expect to hear of a possible agreement.
That's about the time the young Coho salmon of Headwaters will be searching for rapidly declining cool waters and scarce adequate cover.
###
Resources: The Rose Foundation for Communities and the Environment, 510-658-0702; Environmental Protection Information Center, 707-923-2931; Bruce Babbitt, Secretary of the Interior, 202-208-7351.
Issue #207, September-October 1996
Dollars & Sense magazine, 29 Winter Street, Boston, MA 02108, USA, provides left perspectives on economic affairs. It is published six times a year and is edited by a collective of economists, journalists, and activists committed to social justice and economic democracy.
Copyright © 2002 Economic Affairs Bureau, Inc.
The Junk Bond Boss Meets the Ancient Sequoia
by Sharon Seidenstein
Ancient redwoods are priceless, from an environmentalist's point of view, but now green activists are trying to attach a price tag to the trees in order to preserve them. Texas millionaire Charles Hurwitz controls one of the last groves of old-growth redwoods in private hands, and environmentalists are lobbying for a ìdebt-for-natureî swap, with Hurwitz giving the trees to the U.S. government to pay back some of the $1.6 billion it spent bailing out a savings and loan Hurwitz managed into bankruptcy. Hurwitz says the government should either buy the land at fair market value, or get out of his way and let him log.
The direct action group Earth First! was the first to suggest that the Federal Deposit Insurance Corp. (FDIC) accept the redwoods of Pacific Lumber Company's Headwaters Forest in Northern California as payment for its 1988 bailout of depositors of Hurwitz's United Savings & Loan of Texas. In its usual fashion, Earth First! made the suggestion politely, at a 1993 demonstration at the FDIC's Washington, D.C. headquarters. A lot is at stake. The forest's Headwaters Grove is home to 1000-year-old redwoods standing hundreds of feet tall and shielding the habitats of the Northern spotted owl and other threatened and endangered species. It is a remnant of a forest that once blanketed the West Coast from Big Sur to southern Oregon, 96% of which has vanished under 150 years of liquidation logging.
Since the 1993 demonstration, Greenpeace, Sierra Club Legal Defense Fund, and Senators and Congresspeople have joined in the call for a ìdebt-for-natureî swap. They are appealing to the FDIC, the Office of Thrift Supervision (OTS) and the Clinton Administration to negotiate forgiveness of all or part of Hurwitz's debt to the federal government in exchange for 57,000 to 76,000 acres of Headwaters Forest, to be placed into public hands for long-term protection.
Debt-for-nature swaps, although rare in the United States, are not unheard of. In 1988, the Bank of America gave the state of California a nature preserve in the northern part of the state, three other properties and $27 million to clear a debt of about $54 million. In the early 1990s, Howard Hughes' estate swapped wetlands near the Los Angeles Airport in exchange for state taxes due. Outside the United States, Third World countries have traded ecologically valuable resources to relieve debt. This controversial version of the swap has helped protect tropical forests and grasslands in Bolivia, parks on the island of Palawan in the Philippines and a dozen other sites.
A swap of S&L debt for nature seems like a far-fetched plan if you ask Richard Keeton, Hurwitz's lawyer. He took time out from his busy schedule, fielding lawsuits from people seeking his client's cash, to tell me in a good-natured way that any debt-for-nature idea is ìbeating a dead horse.î Since his client is innocent of wrongdoing, he explained, there is no debt.
But it could be one of the FDIC's options, because of the convoluted and seemingly illegal connections Hurwitz created between his S&L and the go-go world of junk bond financing of the 1980s. Hurwitz bought the redwoods with his own swap ó the FDIC claims he buried his Texas S&L by having it buy junk bonds nobody wanted from Michael Milken's junk bond factory at Drexel, Burnham, Lambert in New York City. In turn, Milken helped Hurwitz engineer the takeover of Pacific Lumber and received his business issuing the junk bonds to pay for it.
The takeover has led to the equivalent of a work speedup in the forests. Because junk bonds are risky, or backed by assets of lower value, they burden the companies that issue them with high interest payments. To pay off the loans and interest on $600 million of junk bonds (and $300 million of bank loans) issued to pay for the company, Hurwitz has doubled Pacific Lumber's traditional rate of logging, sold off assets and allegedly raided the employee pension fund. Before the takeover, Pacific Lumber's relatively conservative harvesting practices had kept the forests healthy while other timber companies had destroyed theirs. But now the only thing that protects the Headwaters Grove from logging is an injunction won by an environmental group ó which is likely to end in September.
Junk Bonds for Sale Cheap
Last year, The Wall Street Journal described Hurwitz's United Savings and Loan of Texas as ìa highflying thrift heavily involved in junk bonds, arbitrage and speculative real estate plays.î Its failure was one of the most costly of the S&L bailouts of the 1980s, and centrally involved in the junk bond crisis that cost the U.S. government $134 billion to clean up.
The S&L's complicated financial transactions with Hurwitz's Maxxam Corporation essentially freed up its federally insured deposits to fund Maxxam's hostile takeover of Pacific Lumber. In effect, the government argued in a 1991 lawsuit against Michael Milken, Hurwitz transferred the assets of the federally-insured S&L to Maxxam (see box). This suggests that Hurwitz and Maxxam Corporation acquired Pacific Lumber and Headwaters Forest illegally, and the takeover of the lumber company ìled to the failure of the savings and loan and subsequent bailout,î as one environmental lawyer put it.
The Hurwitz camp categorically denies any wrongdoing. For one, they claim Hurwitz did not legally control United Savings & Loan. His lawyer also says that the FDIC cannot legally ìsecond guessî today actions taken according to Hurwitz's best business judgment in the 1980s.
If the Suit Fits. . . File It
Charles Hurwitz is a wealthy man. He is principal shareholder and CEO of Maxxam, Inc., whose assets were recently estimated at $3.8 billion. Hurwitz, or Maxxam, own Kaiser Aluminum, Federated Development Company of New York, Pacific Lumber and United Financial Group, the former holding company of United Savings and Loan of Texas. Pacific Lumber owns 189,000 acres in Northern California plus two mills. The acreage includes nearly all old-growth redwoods in private hands, some 6,000 acres. Prime old-growth redwood trees, like many of the 300-foot giants in Headwaters Grove, are worth $100,000 each at the lumber yard.
But apparently Hurwitz owes a lot of people a lot of money ó and many are finally going after it. He has faced three shareholder suits linked to Pacific Lumber alone: one an attempt to block the takeover of Pacific Lumber, the second by Pacific Lumber's original shareholders who felt they had been sold out for a ludicrous price, and a third challenging his raid of the employee pension fund. In 1995, the FDIC, the Office of Thrift Supervision and a Humboldt County community activist filed three new suits against him.
FDIC v. Hurwitz, filed in August 1995, seeks a $250 million damage award from the financier directly; Maxxam is not named in the suit. It accuses Hurwitz of having United Savings & Loan buy junk bonds from Drexel in exchange for the firm financing his takeovers. He then hid the true condition of the S&L ìby a pattern of deceptive financial reporting and balance sheet manipulation.î As it sunk deeper into a hole, the S&L increased its liabilities beyond legal limits, gambled on ìcumbersome real estate projects with no realistic chance of success and invested in complex financial instruments which the officers understood poorly and which resulted in staggering losses to the association.î
The FDIC suit
Under Hurwitz's control, the financial condition of United Savings steadily deteriorated. As the institution's financial health plummeted, Hurwitz, senior officers and United Savings board members serving at Hurwitz's request undertook greater and greater risks until both the officers and board members ìbecame entirely indifferent to losses the institution might incur,î the FDIC charged in its lawsuit against Hurwitz.
But according to FDIC chair Ricki Tigert-Helfer, the lawsuit cannot compel Maxxam, Pacific Lumber or their boards of directors to consider a debt-for-nature swap since they might decide to use other assets to satisfy their liability.
"Nevertheless," she added in a letter to Jill Ratner, a lawyer with the Rose Foundation for Communities and the Environment, "the FDIC is open to any appropriate settlement of its claim, including a debt-for-nature swap."
Additional pressure for a debt-for-nature swap came from yet another lawsuit, filed in January 1995 by Humboldt activist Robert Martel in U.S. District Court. It asks that Maxxam repay losses related to the Savings & Loan and that the judge award as much as $4.8 billion in damages on behalf of U.S. taxpayers.
Nearly a year later, in December 1995, the federal Office of Thrift Supervision filed 13 claims in administrative court charging Hurwitz, Maxxam, Federated Development and former and present directors of United Savings and Loan and its holding company with contributing to the failure of the S&L by turning it into ìa vehicle for speculative, highly leveraged, high risk investmentsî from a traditional home mortgage lender. In order to keep financing takeovers while maintaining its stated net worth, the thrift had to sell off its assets.
The suit seeks civil penalties of more than $800,000, restitution and a ban on the financiers from working in the banking industry. Among its other claims: that the financiers failed to properly maintain the minimum net worth of the S&L, which regulators had made a condition for approving the merger of United Savings & Loan and another thrift in 1983; violated a ban against affiliated parties engaging in transactions when the S&L bought junk bonds from Drexel, Burnham, Lambert; failed to maintain the minimum capital required by law; and paid out ìunsafe and unsoundî bonuses, settlements and severance packages to officers and directors.
Languishing and Dying in Congress
The U.S. Congress and the Clinton Administration are well aware of Headwaters and Hurwitz. In 1994, then-Representative Dan Hamburg (D-CA) introduced a bill in the House that authorized the U.S. Forest Service to begin negotiating with Pacific Lumber and other landowners of Headwaters to attach the forest to the Six Rivers National Forest. Although the bill eventually passed the House, the Senate version introduced by Barbara Boxer (D-CA) did not come up for a vote.
Hurwitz has a close ally in Frank Riggs (R-CA), the Congressman who defeated Hamburg in the Republican sweep of 1994. In June, Riggs was soundly rebuffed by his colleagues when he tried to win passage of a rider limiting enforcement of the Endangered Species Act on Pacific Lumber land. Perhaps Pacific Lumber was tired of being challenged by a local environmental group for its violations of environmental law. The Environmental Protection Information Center won nine suits that overturned Headwaters timber harvest plans.
The House also defeated a bill Riggs introduced that would have opened Headwaters to logging if negotiations between the Forest Service and the landowners fell through within an 18-month period.
Meanwhile, environmentalists, senators, representatives, Vice President Al Gore and high-level administrators in the departments of the Treasury and the Interior have been busy exchanging letters and holding meetings. One of the most hopeful meetings took place in February in Sacramento with Deputy Interior Secretary John Garamendi, California state officials and Hurwitz.
Searching for Cover
It's now June.
Pacific Lumber is busy logging. They have already cut a large swath through Headwaters Grove and logged significant portions of second-growth and residual-growth forest. Suits filed by the Environmental Protection Information Center have largely kept the chainsaws out of the most pristine groves, but the court injunction that currently protects the Headwaters Grove will probably be lifted in time for autumn logging.
The neighboring Elk River Timber has indicated it is willing to sell its land to public trust, but in the meanwhile is logging in a threatened species' habitat.
The Environmental Protection Information Center continues its legal battles, challenging a timber harvest plan along the South Fork Elk River drainage in a June lawsuit.
The FDIC suit against Hurwitz and his cohorts is pending in Judge Lynn Hughes' federal court in Houston, awaiting rulings on various motions, including one filed by Hurwitz's lawyers to dismiss the case. The Office of Thrift Supervision's suit is scheduled for a hearing in May 1997 in Houston, but OTS has not frozen Maxxam's assets, as it has the power to do if it thinks they will not be around once the lawsuit is over. Martel's suit seeking damages on behalf of U.S. taxpayers has been transferred, also to Texas.
One possible sign of hope: Deputy Interior Secretary Garamendi recently said that the federal and California governments are discussing with Hurwitz the acquisition of Headwaters Forest ó although they are not specifically talking about a debt-for-nature swap or settling the lawsuits. It will be several months before the public can expect to hear of a possible agreement.
That's about the time the young Coho salmon of Headwaters will be searching for rapidly declining cool waters and scarce adequate cover.
###
Resources: The Rose Foundation for Communities and the Environment, 510-658-0702; Environmental Protection Information Center, 707-923-2931; Bruce Babbitt, Secretary of the Interior, 202-208-7351.
Issue #207, September-October 1996
Dollars & Sense magazine, 29 Winter Street, Boston, MA 02108, USA, provides left perspectives on economic affairs. It is published six times a year and is edited by a collective of economists, journalists, and activists committed to social justice and economic democracy.
Copyright © 2002 Economic Affairs Bureau, Inc.
2.27.2007
Houston Chron - It seems like Charles Hurwitz just can't catch a break
It seems like Charles Hurwitz just can't catch a break
By LOREN STEFFY
Copyright 2007 Houston Chronicle Jan. 23, 2007, 11:13PM
Victory seems to forever elude Charles Hurwitz.
In 1999, he hammered out an agreement with California and federal officials to preserve old-growth redwood trees while allowing his logging company, Pacific Lumber, to cut enough new-growth trees to make a profit.
The deal, known as the Headwaters Agreement, was supposed to broker peace between Hurwitz and environmental groups that opposed his company's logging operations.
More importantly, it should have been a model for how private industry can work with other groups to preserve the environment.
Last week, Pacific Lumber filed for bankruptcy, strangled by new regulations made outside the agreement.
"We were dealt a hand where we couldn't do anything," Hurwitz told me Monday. "It's a pure breach of contract."
Regional water boards, which weren't included in the Headwaters Agreement and therefore argue they aren't bound by it, ruled that runoff from Palco's logging was affecting rivers and streams in Northern California's scenic Humboldt County.
The boards imposed new restrictions.
Palco's timber harvest has fallen steadily as a result, to 145.5 million board feet in 2005 from 166.3 million in 2003, according to its annual filings with the Securities and Exchange Commission.
At the same time, the quality of the harvest shifted to lower grades of redwood and Douglas fir, which sell at a lower price.
The company wasn't making enough money to service its debt, part of which was incurred when Palco refurbished its mills for the newer growth trees as specified in the 1999 deal.
Over the years, the battle between Hurwitz and the environmentalists has grown personal. The protesters bristle at the thought of a single tree felled by Hurwitz's hand.
In a news release, Karen Pickett, director of one such group, the Bay Area Coalition for Headwaters, summed up the filing this way:
"The one thing we can look forward to ultimately is a Maxxam-free and Hurwitz-free company."
Unattractive
Then what?
What chance does Palco have for survival? It can't, under the latest environmental restrictions, produce enough lumber to turn a profit, whether it's owned by Hurwitz or someone else.
Bankruptcy may eliminate some of the company's debt, but it won't make Palco attractive to outside buyers. The threat of unending tree sittings and sabotage to logging operations makes Palco an unappealing purchase.
Hurwitz's adversaries spin a heartwarming myth about returning Palco to its days as an ecofriendly, family-run logging company.
But returning Palco to its old style of operations also returns it to the reality that left it vulnerable to Hurwitz's takeover 20 years ago. Palco was a mismanaged operation. Its executives hadn't done an accurate inventory of its timber lands in more than 30 years, and the "family" company's stock — which was traded on the New York Stock Exchange — languished.
In today's lumber industry, the margins have gotten thinner and the competition has increased. A return to Palco's past would promptly be followed by a return to bankruptcy court.
'Root of all evil'
For his part, Hurwitz has paid a hefty price for his ownership of Palco.
"This is the root of all evil for us," he said. "Everything that's bad in my business life has come out of this."
The environmental issues formed the basis for the Federal Deposit Insurance Corp.'s decade long legal battle against Hurwitz. The lawsuit involved the failure of United Savings Association of Texas, but documents released as part of a congressional investigation revealed that regulators pursued a flimsy case to extract a settlement that would have included forfeiting Palco's old-growth redwood forest.
Hurwitz won, but the government appealed. With the case headed back to court, the victory is hollow. Palco's bankruptcy represents another eroded triumph, the collapse of the Headwaters Agreement.
The cycle remains unbroken and as vicious as it was before. Hurwitz and his foes in the environmental movement seem locked in perpetual conflict.
In many of these battles, Hurwitz has been right. But as last week's bankruptcy filing shows, you can be right and still lose.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays.
By LOREN STEFFY
Copyright 2007 Houston Chronicle Jan. 23, 2007, 11:13PM
Victory seems to forever elude Charles Hurwitz.
In 1999, he hammered out an agreement with California and federal officials to preserve old-growth redwood trees while allowing his logging company, Pacific Lumber, to cut enough new-growth trees to make a profit.
The deal, known as the Headwaters Agreement, was supposed to broker peace between Hurwitz and environmental groups that opposed his company's logging operations.
More importantly, it should have been a model for how private industry can work with other groups to preserve the environment.
Last week, Pacific Lumber filed for bankruptcy, strangled by new regulations made outside the agreement.
"We were dealt a hand where we couldn't do anything," Hurwitz told me Monday. "It's a pure breach of contract."
Regional water boards, which weren't included in the Headwaters Agreement and therefore argue they aren't bound by it, ruled that runoff from Palco's logging was affecting rivers and streams in Northern California's scenic Humboldt County.
The boards imposed new restrictions.
Palco's timber harvest has fallen steadily as a result, to 145.5 million board feet in 2005 from 166.3 million in 2003, according to its annual filings with the Securities and Exchange Commission.
At the same time, the quality of the harvest shifted to lower grades of redwood and Douglas fir, which sell at a lower price.
The company wasn't making enough money to service its debt, part of which was incurred when Palco refurbished its mills for the newer growth trees as specified in the 1999 deal.
Over the years, the battle between Hurwitz and the environmentalists has grown personal. The protesters bristle at the thought of a single tree felled by Hurwitz's hand.
In a news release, Karen Pickett, director of one such group, the Bay Area Coalition for Headwaters, summed up the filing this way:
"The one thing we can look forward to ultimately is a Maxxam-free and Hurwitz-free company."
Unattractive
Then what?
What chance does Palco have for survival? It can't, under the latest environmental restrictions, produce enough lumber to turn a profit, whether it's owned by Hurwitz or someone else.
Bankruptcy may eliminate some of the company's debt, but it won't make Palco attractive to outside buyers. The threat of unending tree sittings and sabotage to logging operations makes Palco an unappealing purchase.
Hurwitz's adversaries spin a heartwarming myth about returning Palco to its days as an ecofriendly, family-run logging company.
But returning Palco to its old style of operations also returns it to the reality that left it vulnerable to Hurwitz's takeover 20 years ago. Palco was a mismanaged operation. Its executives hadn't done an accurate inventory of its timber lands in more than 30 years, and the "family" company's stock — which was traded on the New York Stock Exchange — languished.
In today's lumber industry, the margins have gotten thinner and the competition has increased. A return to Palco's past would promptly be followed by a return to bankruptcy court.
'Root of all evil'
For his part, Hurwitz has paid a hefty price for his ownership of Palco.
"This is the root of all evil for us," he said. "Everything that's bad in my business life has come out of this."
The environmental issues formed the basis for the Federal Deposit Insurance Corp.'s decade long legal battle against Hurwitz. The lawsuit involved the failure of United Savings Association of Texas, but documents released as part of a congressional investigation revealed that regulators pursued a flimsy case to extract a settlement that would have included forfeiting Palco's old-growth redwood forest.
Hurwitz won, but the government appealed. With the case headed back to court, the victory is hollow. Palco's bankruptcy represents another eroded triumph, the collapse of the Headwaters Agreement.
The cycle remains unbroken and as vicious as it was before. Hurwitz and his foes in the environmental movement seem locked in perpetual conflict.
In many of these battles, Hurwitz has been right. But as last week's bankruptcy filing shows, you can be right and still lose.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays.
Houston Chron - Timber war may live longer than redwoods
Timber war may live longer than redwoods
By LOREN STEFFY
Copyright 2005 Houston Chronicle June 16, 2005, 9:37PM
SACRAMENTO, CALIF. — The timber wars were supposed to be over.
ADVERTISEMENT
The peace accord came in 1999, when the federal government and the state of California bought 7,500 acres of old-growth redwood trees from Pacific Lumber for more than $400 million. The lumber company agreed to new environmental and logging restrictions.
That, Pacific Lumber officials figured, would allow it to make a profit for its parent company, Houston-based Maxxam, and meet its obligations to employees.
"It all made sense in 1999," says Robert Manne, Pacific Lumber's president, sitting in his office in the company-owned town of Scotia. It was a balance among "the environmental, the economic and the social aspects of what we were doing."
These days, it's hard to believe there was a truce. Just this week, Palco, as the company is known, was in court in Eureka, where the district attorney had accused it of fraud. The DA claimed Palco submitted a misleading landslide study to a regional water board. A judge threw out the case on Tuesday.
By Thursday, Manne and other Palco officials were here in the state capital, five hours southeast of Scotia, arguing against state water board restrictions on logging in several key watersheds that Palco claims it has the right to cut under the 1999 agreement.
The water board disagreed. In public filings, Palco has said the restrictions may force it or its subsidiary, Scotia Pacific, into bankruptcy.
Environmentalists, cheering what they see as a significant victory, dismissed that notion.
"They deliberately keep themselves on the brink of bankruptcy," says Paul Mason, a legislative representative with the Sierra Club, which has battled Palco for years. "It's a shell game by very clever financial minds."
There are few things both sides agree on, but one is that the whole battle is probably headed to court. That would have to happen before July 19, which is the deadline for the next debt payments due on Scotia Pacific's publicly traded bonds. Those bonds are backed by the value of the company's timberland. Based on Thursday's ruling, the company can't log enough to make the interest payment, Manne says.
It's the latest twist in a 20-year battle that began when Houston financier Charles Hurwitz bought the company in a 1986 leveraged buyout. The deal made Hurwitz a villain to environmentalists, who portray him as a greedy corporate raider who wants to fell every redwood in the region for a quick buck.
Revisiting agreement
The water boards are, in essence, revisiting the 1999 agreement, which created the federal Headwaters Reserve of old-growth redwoods.
"That duplicative review process is killing us," Manne says. In the past five years, Palco's employment has fallen by half, to 800 from 1,600, and Manne says those declines may continue. The company has closed mills, and Manne says the log decks in Scotia, where the freshly cut trees arrive for processing, are "an embarrassment" because they're so empty.
Under the 1999 agreement with the state, Palco agreed to limit logging to 178 million board feet a year, down from more than 220 board feet before the deal was signed. With the water board restrictions, it's cutting about 100 million.
Mismanagement charged
In its review of Palco's operations, released in April, a member of the water board's staff said Maxxam has mismanaged Palco, burdening the company with debt and logging at unsustainable rates.
"It was almost juvenile in its analysis," Manne says.
Mason, with the Sierra Club, argues that Palco is hiding behind the Headwaters agreement, using it as a blanket exemption from all environmental restrictions.
Hurwitz has never been one to run from a fight, and he may enjoy testing the limits of government regulation. But no one's ever proven that he's broken it, and that is part of what galls his opponents.
As one told me after the hearing, what they find so upsetting about Palco is that everything it's done is legal.
Both sides determined
After years of following the Maxxam-Palco-redwoods saga, one thing is clear: The environmentalists are as determined to stop Palco from cutting trees as Hurwitz is to keep doing it.
The Headwaters agreement was supposed to end the timber wars. The activists came down from the trees. The company sold or set aside most of its old-growth timber and invested $30 million in a new mill here designed to handle younger trees.
It was part of a plan that was supposed to push Palco to forefront of the industry and make it an example of environmental responsibility.
"It never happened," Manne says.
The timber wars never ended. Sometimes, the battle is so divisive that a truce is unattainable.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays.
By LOREN STEFFY
Copyright 2005 Houston Chronicle June 16, 2005, 9:37PM
SACRAMENTO, CALIF. — The timber wars were supposed to be over.
ADVERTISEMENT
The peace accord came in 1999, when the federal government and the state of California bought 7,500 acres of old-growth redwood trees from Pacific Lumber for more than $400 million. The lumber company agreed to new environmental and logging restrictions.
That, Pacific Lumber officials figured, would allow it to make a profit for its parent company, Houston-based Maxxam, and meet its obligations to employees.
"It all made sense in 1999," says Robert Manne, Pacific Lumber's president, sitting in his office in the company-owned town of Scotia. It was a balance among "the environmental, the economic and the social aspects of what we were doing."
These days, it's hard to believe there was a truce. Just this week, Palco, as the company is known, was in court in Eureka, where the district attorney had accused it of fraud. The DA claimed Palco submitted a misleading landslide study to a regional water board. A judge threw out the case on Tuesday.
By Thursday, Manne and other Palco officials were here in the state capital, five hours southeast of Scotia, arguing against state water board restrictions on logging in several key watersheds that Palco claims it has the right to cut under the 1999 agreement.
The water board disagreed. In public filings, Palco has said the restrictions may force it or its subsidiary, Scotia Pacific, into bankruptcy.
Environmentalists, cheering what they see as a significant victory, dismissed that notion.
"They deliberately keep themselves on the brink of bankruptcy," says Paul Mason, a legislative representative with the Sierra Club, which has battled Palco for years. "It's a shell game by very clever financial minds."
There are few things both sides agree on, but one is that the whole battle is probably headed to court. That would have to happen before July 19, which is the deadline for the next debt payments due on Scotia Pacific's publicly traded bonds. Those bonds are backed by the value of the company's timberland. Based on Thursday's ruling, the company can't log enough to make the interest payment, Manne says.
It's the latest twist in a 20-year battle that began when Houston financier Charles Hurwitz bought the company in a 1986 leveraged buyout. The deal made Hurwitz a villain to environmentalists, who portray him as a greedy corporate raider who wants to fell every redwood in the region for a quick buck.
Revisiting agreement
The water boards are, in essence, revisiting the 1999 agreement, which created the federal Headwaters Reserve of old-growth redwoods.
"That duplicative review process is killing us," Manne says. In the past five years, Palco's employment has fallen by half, to 800 from 1,600, and Manne says those declines may continue. The company has closed mills, and Manne says the log decks in Scotia, where the freshly cut trees arrive for processing, are "an embarrassment" because they're so empty.
Under the 1999 agreement with the state, Palco agreed to limit logging to 178 million board feet a year, down from more than 220 board feet before the deal was signed. With the water board restrictions, it's cutting about 100 million.
Mismanagement charged
In its review of Palco's operations, released in April, a member of the water board's staff said Maxxam has mismanaged Palco, burdening the company with debt and logging at unsustainable rates.
"It was almost juvenile in its analysis," Manne says.
Mason, with the Sierra Club, argues that Palco is hiding behind the Headwaters agreement, using it as a blanket exemption from all environmental restrictions.
Hurwitz has never been one to run from a fight, and he may enjoy testing the limits of government regulation. But no one's ever proven that he's broken it, and that is part of what galls his opponents.
As one told me after the hearing, what they find so upsetting about Palco is that everything it's done is legal.
Both sides determined
After years of following the Maxxam-Palco-redwoods saga, one thing is clear: The environmentalists are as determined to stop Palco from cutting trees as Hurwitz is to keep doing it.
The Headwaters agreement was supposed to end the timber wars. The activists came down from the trees. The company sold or set aside most of its old-growth timber and invested $30 million in a new mill here designed to handle younger trees.
It was part of a plan that was supposed to push Palco to forefront of the industry and make it an example of environmental responsibility.
"It never happened," Manne says.
The timber wars never ended. Sometimes, the battle is so divisive that a truce is unattainable.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays.
Houston Chron - FDIC made its bed and can lie in it
FDIC made its bed and can lie in it
By LOREN STEFFY
Copyright 2005 Houston Chronicle Aug. 28, 2005, 1:36AM
I don't envy the Federal Deposit Insurance Corp.
Having botched the case against Charles Hurwitz at almost every turn, facing rare and hefty sanctions of as much as $72 million, the FDIC's board must now decide what to do next.
For most of last week, the FDIC has said it will appeal U.S. District Judge Lynn Hughes' ruling, issued Tuesday, awarding the sanctions to Hurwitz and Maxxam, the holding company he controls.
I pressed spokesman David Barr on that point. He acknowledged no final decision has been made.
"We're definitely leaning in that direction," he said.
Meaning that the FDIC staff, the same hapless band that has been wrong time after time in this case, now wants to keep it alive.
It leaves the FDIC in a deep hole of its own digging.
It can appeal the verdict and risk that an appeals court will smack down the claims as two judges already have, or it can pay the sanctions and set a dangerous precedent by admitting it overstepped its authority. The sanctions came after more than a decade of legal wrangling with Hurwitz and Maxxam over the collapse of Houston's United Savings, which cost taxpayers about $1.6 billion.
No proof
Even setting aside Hurwitz's claims of a government conspiracy to get redwood trees owned by Maxxam's Pacific Lumber unit — which the FDIC denies — the agency has failed to make its case.
The gist of its claims is that Hurwitz and Maxxam had a requirement to pump additional capital into the thrift. Hurwitz said there was no such requirement, and the FDIC has been unable to prove otherwise in court.
It filed suit in 1995. A congressional investigation later uncovered an internal memo that found the FDIC's own lawyers predicted that there was a 70 percent chance the agency would lose.
Barr says the FDIC can't discuss the issue because the related documents are under seal. At the FDIC's prodding, the Office of Thrift Supervision filed an administrative proceeding. The case went before an administrative law judge, who threw out the claims.
Facing appeal, Hurwitz agreed to settle by paying $200,000 and promising he wouldn't sit on the board of a bank. Barr says the FDIC decided to drop its case because justice had been served.
Scathing findings
It's a loser's revision of logic.
After seven years in court, the FDIC tried to walk away, but Hurwitz wouldn't allow it. He sued the FDIC for sanctions. Last week, Hughes issued his blistering decision. The ruling is startling in its word choice and scathing in its findings. It compares the FDIC to organized crime, and it faults the government for its "betrayal of the public trust" and "its vindictive political assault."
The FDIC wants to dismiss Hughes as something of a crank. He is, after all, known for ruling against government agencies. But Hughes didn't just dash off the opinion over a weekend. He took more than a year to come to his decision, which outlines a systemic abuse of power by the FDIC.
What emanates from the pages is an exasperation, a sense that Hughes believes the case should never have been filed in the first place.
"We strongly disagree with the ruling," Barr says. "It's not supported by the facts of the case." Those facts have been presented twice, before two judges who both found them lacking.
Upholding fairness
Hurwitz, as I've said before, is not a sympathetic victim. He is a wealthy man, a corporate raider whose buying sprees were financed with junk bonds from Michael Milken. He used surpluses from a workers' pension fund to help finance his acquisition of Pacific Lumber and has battled environmental regulations. But there has never been any evidence he committed a crime. Sympathy isn't a prerequisite for justice. Our system rests on fairness and truth.
The FDIC has been unable to prove its claims, and its pursuit of a case it knew from the start it was unlikely to win has now landed it exactly where it predicted: in defeat.
The current FDIC board inherited this case and must now decide what to do. It has become a blood feud of sorts, one that the staff doesn't want to relinquish.
With two strikes already against it, the agency has an unenviable choice: try again and risk further humiliation, or own up to its past sins.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays.
By LOREN STEFFY
Copyright 2005 Houston Chronicle Aug. 28, 2005, 1:36AM
I don't envy the Federal Deposit Insurance Corp.
Having botched the case against Charles Hurwitz at almost every turn, facing rare and hefty sanctions of as much as $72 million, the FDIC's board must now decide what to do next.
For most of last week, the FDIC has said it will appeal U.S. District Judge Lynn Hughes' ruling, issued Tuesday, awarding the sanctions to Hurwitz and Maxxam, the holding company he controls.
I pressed spokesman David Barr on that point. He acknowledged no final decision has been made.
"We're definitely leaning in that direction," he said.
Meaning that the FDIC staff, the same hapless band that has been wrong time after time in this case, now wants to keep it alive.
It leaves the FDIC in a deep hole of its own digging.
It can appeal the verdict and risk that an appeals court will smack down the claims as two judges already have, or it can pay the sanctions and set a dangerous precedent by admitting it overstepped its authority. The sanctions came after more than a decade of legal wrangling with Hurwitz and Maxxam over the collapse of Houston's United Savings, which cost taxpayers about $1.6 billion.
No proof
Even setting aside Hurwitz's claims of a government conspiracy to get redwood trees owned by Maxxam's Pacific Lumber unit — which the FDIC denies — the agency has failed to make its case.
The gist of its claims is that Hurwitz and Maxxam had a requirement to pump additional capital into the thrift. Hurwitz said there was no such requirement, and the FDIC has been unable to prove otherwise in court.
It filed suit in 1995. A congressional investigation later uncovered an internal memo that found the FDIC's own lawyers predicted that there was a 70 percent chance the agency would lose.
Barr says the FDIC can't discuss the issue because the related documents are under seal. At the FDIC's prodding, the Office of Thrift Supervision filed an administrative proceeding. The case went before an administrative law judge, who threw out the claims.
Facing appeal, Hurwitz agreed to settle by paying $200,000 and promising he wouldn't sit on the board of a bank. Barr says the FDIC decided to drop its case because justice had been served.
Scathing findings
It's a loser's revision of logic.
After seven years in court, the FDIC tried to walk away, but Hurwitz wouldn't allow it. He sued the FDIC for sanctions. Last week, Hughes issued his blistering decision. The ruling is startling in its word choice and scathing in its findings. It compares the FDIC to organized crime, and it faults the government for its "betrayal of the public trust" and "its vindictive political assault."
The FDIC wants to dismiss Hughes as something of a crank. He is, after all, known for ruling against government agencies. But Hughes didn't just dash off the opinion over a weekend. He took more than a year to come to his decision, which outlines a systemic abuse of power by the FDIC.
What emanates from the pages is an exasperation, a sense that Hughes believes the case should never have been filed in the first place.
"We strongly disagree with the ruling," Barr says. "It's not supported by the facts of the case." Those facts have been presented twice, before two judges who both found them lacking.
Upholding fairness
Hurwitz, as I've said before, is not a sympathetic victim. He is a wealthy man, a corporate raider whose buying sprees were financed with junk bonds from Michael Milken. He used surpluses from a workers' pension fund to help finance his acquisition of Pacific Lumber and has battled environmental regulations. But there has never been any evidence he committed a crime. Sympathy isn't a prerequisite for justice. Our system rests on fairness and truth.
The FDIC has been unable to prove its claims, and its pursuit of a case it knew from the start it was unlikely to win has now landed it exactly where it predicted: in defeat.
The current FDIC board inherited this case and must now decide what to do. It has become a blood feud of sorts, one that the staff doesn't want to relinquish.
With two strikes already against it, the agency has an unenviable choice: try again and risk further humiliation, or own up to its past sins.
Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays.
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.
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.
Congress Should Hold Hearings on FDIC Abuse of Citizens
#267 October 1999
Congress Should Hold Hearings on FDIC Abuse of Citizens
by Amy Ridenour
Innocent until proven guilty, right?
That's what it says in civics textbooks. But in the real world, sometimes government officials want you to be guilty. If that happens, even if you are innocent, you can be in big trouble.
Take the cases of Charles Hurwitz of Texas and Glen Garrett of Missouri.
In Hurwitz's case, the government wanted valuable land owned by Hurwitz's company. Hurwitz was willing to sell, but as the land carried a high fair-market value, it was expensively priced. Rather than buy the land in an honest transaction, the government sued Hurwitz's business over an unrelated regulatory matter under the jurisdiction of the U.S. Federal Deposit Insurance Corporation (FDIC). Essentially, the government said: Give us the land; we'll settle the suit.
In other words, blackmail.
On that day, the Founding Fathers rolled over in their graves.
Internal documents show that the land-confiscation scheme, unconstitutional though it was, had the approval of government officials as high as the White House. On March 21, 1995, then White House Chief of Staff Leon Panetta, in fact, wrote a letter on White House stationery endorsing this scheme, saying, "Budgetary constraints have made it impractical to acquire such an expensive tract of land through outright federal purchase."1
Even more chillingly, after a federal judge forced the FDIC, over its protests - including an appeal to another court,2 to make public some of the FDIC's internal documents, it became clear that the FDIC knew perfectly well that it had little chance of proving Hurwitz guilty. Although FDIC policy prohibits the agency from pursuing cases unless it is "more than likely to succeed," in its zeal to acquire the land, the FDIC ignored its own policies and proceeded with a suit it knew lacked merit.3
Hurwitz refused to be blackmailed, but he did fully cooperate with investigators4 and he sold the government the land for a price lower than its value. The banking agencies were not grateful. Instead, the FDIC continued its case against Hurwitz in a federal court, where the government is unlikely to win. It also opened a "second front" against Hurwitz by way of an internal government Office of Thrift Supervision (OTS) regulatory hearing, paid for by the FDIC, where Hurwitz's rights are limited and where his guilt will be determined by administrators paid by the prosecutors.
According to the journal of the American Bar Association, the proceedings in this chamber are so greatly in the government's favor that one of the administrative judges has never once ruled against the government.5
Reportedly, the government hopes to force Hurwitz to surrender some additional land that was not included in the sale. A federal district judge called the case a "manipulation of the court system."6
So far, Hurwitz and his companies have spent over $20 million in this case7 and taxpayer expenditures are similar.8
The Oxford English Dictionary refers to the infamous "Star Chamber" as a court whose "rules of procedure... rendered it a powerful instrument in the hands of a sovereign or ministry desirous of using it for tyranny."9
We like to think we've come far since the 15th-17th century Star Chamber, but we obviously have not.
The story of small-town Missouri banker Glen Garrett is different, but no less alarming to those who believe that Americans who are innocent of any crime have the right not to be hounded by their government.
Garrett was the subject of an anonymous, ill-founded and false accusation of dishonesty against him made to the state bank examiners, who passed them on to the FDIC. It was later shown that the false charges were made by one of Garrett's business competitors, hardly an objective source.
The FDIC began an exhaustive investigation that would eventually take almost a decade to resolve. Despite finding insufficient evidence of any wrongdoing, the FDIC was undeterred. Worse, an FDIC senior management official demonstrated extreme bias, saying, "Glen Garrett should be castrated."
Rather than find proof of wrongdoing by Garrett, however, the FDIC racked up an impressive list of wrongdoing of its own. Among them:
* An FDIC official asked an officer of Garrett's bank to lie about the investigation. When the officer refused and the bank complained to the FDIC, no action was taken.
* During the investigation, a government official told another banker false derogatory information about Garrett's personal confidential financial affairs. It is a violation of criminal statues for government bank examiners to release personal financial information they learn during a bank examination to another banker. Again, no action was taken.
* The FDIC attempted to incite a U.S. Attorney to bring a criminal indictment against Garrett by sending the U.S. Attorney a written referral which contained numerous false and unsubstantiated allegations against Garrett, which the FDIC labeled as "facts," not "allegations" or "suspicions." The FDIC has conceded that they made false allegations.
* During a hearing Garrett subpoenaed two FDIC officials to testify about their knowledge of the case. In a blatant attempt to subvert Garrett's rights in court, the FDIC responded by sending letters to its own employees threatening them with criminal prosecution if they testified.
In the end, and after Garrett was forced to spend almost $2 million to defend against the false FDIC allegations, the FDIC decided to withdraw and dismiss (with extreme prejudice, which means they can never resurrect the charges again) all charges it made against Garrett, thus totally vindicating him of all wrongdoing. But even here, the FDIC required one last tribute from Garrett: he had to pledge not to sue the FDIC for wrongful prosecution.10
On October 11, Federal Reserve Chairman Alan Greenspan delivered a major speech to the annual convention of the American Bankers Association on the need for changes in the banking regulation system, but he said not one word about the urgent need to correct abuses like these.11 This was wrong.
One of Thomas Jefferson's complaints about the British government in the Declaration of Independence was that King George III had "depriv[ed] us in many cases, of the benefits of trial by jury." The Declaration of Independence retains a powerful resonance because it speaks of timeless, universal truths. The regulatory process should never be used as a substitute for objective adjudication by an impartial tribunal.
Our government today needs to reaffirm its commitment to these truths, which remain as important today as they were to our citizenry in 1776. Congress should hold hearings to look into these events, and develop policies to prevent future such abuses.
Footnotes:
1 Bob Sablatura, "Redwoods, Not Red Ink, May Have Motivated FDIC Against Hurwitz; Documents Show Agency May Have Tried to Hide Truth in Pursuing Suit Against Financier," Houston Chronicle, July 19, 1998, p. A1.
2 Sablatura, p. A1.
3 Sablatura, p. A1.
4 Letter of U.S. House of Representatives Majority Whip Tom DeLay to The Honorable Donna A. Tranoue, Chairman, Federal Deposit Insurance Corporation, and Mr. Gaston L. Gianni, Jr., Inspector General, Federal Deposit Insurance Corporation, February 3, 1999.
5 Terry Carter, "Banking and Fear," ABA Journal, July 1999.
6 United States District Judge Lynn N. Hughes, "Opinion on Dismissal of The Office of Thrift Supervision," Federal Deposit Insurance Corporation and Office of Thrift Supervision v. Charles E. Hurwitz, U.S. District Court, Southern District of Texas, Civil Action H-95-3956, October 23, 1997.
7 Sablatura, p. A1.
8 Quoted in "Charles Hurwitz is No Sap," by Kathryn Jones, Texas Monthly Biz, June 1999, Charles Hurwitz estimates the combined expenditures of Hurwitz and his companies and the government at $50 million.
9 The Oxford English Dictionary, Oxford University Press, 1971.
10 Information about the story of Glen Garrett was obtained from the following sources, among others: Terry Carter, "Banking on Fear," ABA Journal, July 1999; Interviews with Stephens B. Woodrough, legal counsel for Glen Garrett and former FDIC litigator, conducted in September and October 1999; Woodrough, Stephens B., "The Abuse of Regulatory Power - A New and Powerful Antidote," (unpublished); Prepared testimony by Stephens B. Woodrough before the Small Business Administration Regulatory Enforcement Fairness Board, St. Louis, Missouri, June 8, 1998; Testimony of Paul G. Fritts, former FDIC Executive Director of Supervision and Resolutions before the Small Business Administration Regulatory Enforcement Fairness Board, St. Louis, Missouri, June 8, 1998.
11 Prepared text of speech delivered by U.S. Federal Reserve Chairman Alan Greenspan to the American Bankers Association in Phoenix, Arizona, on October 11, 1999.
# # #
Amy Ridenour is president of The National Center for Public Policy Research.
Congress Should Hold Hearings on FDIC Abuse of Citizens
by Amy Ridenour
Innocent until proven guilty, right?
That's what it says in civics textbooks. But in the real world, sometimes government officials want you to be guilty. If that happens, even if you are innocent, you can be in big trouble.
Take the cases of Charles Hurwitz of Texas and Glen Garrett of Missouri.
In Hurwitz's case, the government wanted valuable land owned by Hurwitz's company. Hurwitz was willing to sell, but as the land carried a high fair-market value, it was expensively priced. Rather than buy the land in an honest transaction, the government sued Hurwitz's business over an unrelated regulatory matter under the jurisdiction of the U.S. Federal Deposit Insurance Corporation (FDIC). Essentially, the government said: Give us the land; we'll settle the suit.
In other words, blackmail.
On that day, the Founding Fathers rolled over in their graves.
Internal documents show that the land-confiscation scheme, unconstitutional though it was, had the approval of government officials as high as the White House. On March 21, 1995, then White House Chief of Staff Leon Panetta, in fact, wrote a letter on White House stationery endorsing this scheme, saying, "Budgetary constraints have made it impractical to acquire such an expensive tract of land through outright federal purchase."1
Even more chillingly, after a federal judge forced the FDIC, over its protests - including an appeal to another court,2 to make public some of the FDIC's internal documents, it became clear that the FDIC knew perfectly well that it had little chance of proving Hurwitz guilty. Although FDIC policy prohibits the agency from pursuing cases unless it is "more than likely to succeed," in its zeal to acquire the land, the FDIC ignored its own policies and proceeded with a suit it knew lacked merit.3
Hurwitz refused to be blackmailed, but he did fully cooperate with investigators4 and he sold the government the land for a price lower than its value. The banking agencies were not grateful. Instead, the FDIC continued its case against Hurwitz in a federal court, where the government is unlikely to win. It also opened a "second front" against Hurwitz by way of an internal government Office of Thrift Supervision (OTS) regulatory hearing, paid for by the FDIC, where Hurwitz's rights are limited and where his guilt will be determined by administrators paid by the prosecutors.
According to the journal of the American Bar Association, the proceedings in this chamber are so greatly in the government's favor that one of the administrative judges has never once ruled against the government.5
Reportedly, the government hopes to force Hurwitz to surrender some additional land that was not included in the sale. A federal district judge called the case a "manipulation of the court system."6
So far, Hurwitz and his companies have spent over $20 million in this case7 and taxpayer expenditures are similar.8
The Oxford English Dictionary refers to the infamous "Star Chamber" as a court whose "rules of procedure... rendered it a powerful instrument in the hands of a sovereign or ministry desirous of using it for tyranny."9
We like to think we've come far since the 15th-17th century Star Chamber, but we obviously have not.
The story of small-town Missouri banker Glen Garrett is different, but no less alarming to those who believe that Americans who are innocent of any crime have the right not to be hounded by their government.
Garrett was the subject of an anonymous, ill-founded and false accusation of dishonesty against him made to the state bank examiners, who passed them on to the FDIC. It was later shown that the false charges were made by one of Garrett's business competitors, hardly an objective source.
The FDIC began an exhaustive investigation that would eventually take almost a decade to resolve. Despite finding insufficient evidence of any wrongdoing, the FDIC was undeterred. Worse, an FDIC senior management official demonstrated extreme bias, saying, "Glen Garrett should be castrated."
Rather than find proof of wrongdoing by Garrett, however, the FDIC racked up an impressive list of wrongdoing of its own. Among them:
* An FDIC official asked an officer of Garrett's bank to lie about the investigation. When the officer refused and the bank complained to the FDIC, no action was taken.
* During the investigation, a government official told another banker false derogatory information about Garrett's personal confidential financial affairs. It is a violation of criminal statues for government bank examiners to release personal financial information they learn during a bank examination to another banker. Again, no action was taken.
* The FDIC attempted to incite a U.S. Attorney to bring a criminal indictment against Garrett by sending the U.S. Attorney a written referral which contained numerous false and unsubstantiated allegations against Garrett, which the FDIC labeled as "facts," not "allegations" or "suspicions." The FDIC has conceded that they made false allegations.
* During a hearing Garrett subpoenaed two FDIC officials to testify about their knowledge of the case. In a blatant attempt to subvert Garrett's rights in court, the FDIC responded by sending letters to its own employees threatening them with criminal prosecution if they testified.
In the end, and after Garrett was forced to spend almost $2 million to defend against the false FDIC allegations, the FDIC decided to withdraw and dismiss (with extreme prejudice, which means they can never resurrect the charges again) all charges it made against Garrett, thus totally vindicating him of all wrongdoing. But even here, the FDIC required one last tribute from Garrett: he had to pledge not to sue the FDIC for wrongful prosecution.10
On October 11, Federal Reserve Chairman Alan Greenspan delivered a major speech to the annual convention of the American Bankers Association on the need for changes in the banking regulation system, but he said not one word about the urgent need to correct abuses like these.11 This was wrong.
One of Thomas Jefferson's complaints about the British government in the Declaration of Independence was that King George III had "depriv[ed] us in many cases, of the benefits of trial by jury." The Declaration of Independence retains a powerful resonance because it speaks of timeless, universal truths. The regulatory process should never be used as a substitute for objective adjudication by an impartial tribunal.
Our government today needs to reaffirm its commitment to these truths, which remain as important today as they were to our citizenry in 1776. Congress should hold hearings to look into these events, and develop policies to prevent future such abuses.
Footnotes:
1 Bob Sablatura, "Redwoods, Not Red Ink, May Have Motivated FDIC Against Hurwitz; Documents Show Agency May Have Tried to Hide Truth in Pursuing Suit Against Financier," Houston Chronicle, July 19, 1998, p. A1.
2 Sablatura, p. A1.
3 Sablatura, p. A1.
4 Letter of U.S. House of Representatives Majority Whip Tom DeLay to The Honorable Donna A. Tranoue, Chairman, Federal Deposit Insurance Corporation, and Mr. Gaston L. Gianni, Jr., Inspector General, Federal Deposit Insurance Corporation, February 3, 1999.
5 Terry Carter, "Banking and Fear," ABA Journal, July 1999.
6 United States District Judge Lynn N. Hughes, "Opinion on Dismissal of The Office of Thrift Supervision," Federal Deposit Insurance Corporation and Office of Thrift Supervision v. Charles E. Hurwitz, U.S. District Court, Southern District of Texas, Civil Action H-95-3956, October 23, 1997.
7 Sablatura, p. A1.
8 Quoted in "Charles Hurwitz is No Sap," by Kathryn Jones, Texas Monthly Biz, June 1999, Charles Hurwitz estimates the combined expenditures of Hurwitz and his companies and the government at $50 million.
9 The Oxford English Dictionary, Oxford University Press, 1971.
10 Information about the story of Glen Garrett was obtained from the following sources, among others: Terry Carter, "Banking on Fear," ABA Journal, July 1999; Interviews with Stephens B. Woodrough, legal counsel for Glen Garrett and former FDIC litigator, conducted in September and October 1999; Woodrough, Stephens B., "The Abuse of Regulatory Power - A New and Powerful Antidote," (unpublished); Prepared testimony by Stephens B. Woodrough before the Small Business Administration Regulatory Enforcement Fairness Board, St. Louis, Missouri, June 8, 1998; Testimony of Paul G. Fritts, former FDIC Executive Director of Supervision and Resolutions before the Small Business Administration Regulatory Enforcement Fairness Board, St. Louis, Missouri, June 8, 1998.
11 Prepared text of speech delivered by U.S. Federal Reserve Chairman Alan Greenspan to the American Bankers Association in Phoenix, Arizona, on October 11, 1999.
# # #
Amy Ridenour is president of The National Center for Public Policy Research.
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
###
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.
***
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
###
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.
***