Hurwitz’ Savings and Loan USAT

Hurwitz Savings and Loan USAT 2

FDIC Early Allegations v Hurwitz

The 1993 UFG 10K includes a description of the “FDIC Allegations” which is as follows.

The theory of liability includes breach of fiduciary responsibility, aiding and abetting others in a breach of fiduciary responsibility, wrongfully causing USAT to pay a dividend to UFG, failure to maintain net worth of USAT, and UFG’s failure to remit a tax refund to USAT.

Based upon our knowledge of the USAT failure its is probably Hurwitz, Kozmetsky and Munitz who are thought to have breached their fiduciary responsibilities aided by the other possible targets who were members of the Executive Committee, the Investment Committee and the Investment Department of USAT. The dividend referred to was generated by accounting tricks in 1984 and paid in 1985 from USAT to UFG. 1984 was the only year USAT showed a profit. The three major causes of the profit which allowed the dividend were the sale of 20 branch offices to Independent American, the sale of loans to an unknown buyer, and the accounting of the purchase of the stock in Weingarten Realty Inc.

The specific acts which underlay the FDIC’s claims include acts connected with the acquisition and disposition of certain equity securities, high yield bonds, Mortgage backed securities and derivatives; the making of certain loans; the disposition of certain assets; and the establishment of ceratin reserves for USAT.

Again based upon our knowledge of the USAT failure these acts include the Quid Pro Quo of USAT’s junk bond and other security purchases from Milken in trade for Milken’s underwriting of the high Yield bonds needed by Hurwitz for his takeover of Pacific Lumber; loans to Gross and other of the possible targets and the loans to Livingwell; Hurwitz’ possession of a condo which may have been an asset of USAT; and Federated’ possession of assets from USAT which it formed into a subsidiary called Bering Corporation. Bering would have been the successor to the Investment Department,(highly computerized) and USAT’s assets would include the central staff and equipment which formed Hurwitz’ so-called “common arbitrage” system.

FDIC’s Other Complaints

On January 18, 1991, a class action complaint was filed by the Federal Deposit Insurance Corporation (FDIC) and the Resolution Trust Corporation (RTC), against numerous persons and corporations involved in both the buying and issuance of junk bonds and involved in savings and loans.

Charles Hurwitz and the United Savings Association of Texas (USAT) (once the largest in Texas controlled by Hurwitz from late 1982 until late 1988 when it was seized by the Federal government), are mentioned in the suit thought Hurwitz is not named a defendant.  The complaint alleges Hurwitz and Michael Milken, Drexel Burnham Lambert and other executives in Drexel, as well as other corporate figures engaged in a scheme to drain S and L’s of cash to finance various takeovers.

The complaint tells how Drexel raised money for Hurwitz to buy United Financial Group, the holding company which owned 100% of United Savings.  Drexel and Michael Milken together owned 8% of United.  Hurwitz owned 23%.  Hurwitz and Drexel were two largest stockholders in United during the takeover of Pacific Lumber.

United bought nearly $1.4 billion on Drexel issued junk bonds in companies involved in takeovers during 1985-1988.  In turn Milken raised $1.8 billion for Hurwitz takeovers.

Hurwitz entered into secret agreements with Milken and others such as Golden Nugget casinos.  Golden Nugget’s GNOC bought Hurwitz-issued junk bonds, funding the takeover of PL, and by these agreements United bought bonds for Golden Nugget’s takeovers.  This arrangement was repeated with other defendants such as Charles Keating, Columbia Savings and Loan.

United Savings Association of Texas (USAT) is named as one of a group of 6 S and L’s used in this manner now controlled by the FDIC.

Of those closely related to the takeover of PL – Milken, Boyd Jefferies, Ivan Boesky and Drexel have plead guilty to charges of fraud similar to their actions during the PL takeover.  Hurwitz remains, as yet uncharged.

UFG-USAT History

United Financial Group has its roots in the formation of Southwestern Group Financial (Del) in 1970. SGF had 5 S&L subs including Abilene SA, which were merged into a single subsidiary, United Savings Association of Texas in 1978. The following year Kaneb Services acquired SGF in a merger.

SGF sought a buyer for its S&L sub at the same time that it expanded its acquisitions of smaller institutions with the mergers of World Savings, Parker Square, and Wharton County S&L’s into USAT during 1981. News accounts tell of a failed attempt to sell USAT to Daniel Ludwig in 1980.

In Late 1981, Kaneb changed the name of its S and L holding company to United Financial Group and distributed UFG stock to Kaneb’s shareholders as a special dividend. Hurwitz-controlled Federated Development Co held Kaneb stock in its sub Federated Reinsurance Corp and therefore received its first UFG stock in this distribution. By February 1982, FDC-FRC reported owning 7.86% of UFG-USAT.

In June 1982, UFG-USAT announced the signing of a letter of intent to merge with First American Financial, Texas and its S&L sub Houston First American Savings. Media accounts cite Hurwitz as the engineer of this merger.

FAF, Tx was a subsidiary of PennCorp Financial, controlled by Milken intimate Carl Lindner through his American Financial Corp and by Lloyd Bentsen. Penn Corp had announced in February 1982 its intentions to merge into Associated Madison and American Can Corp both run by Gerald Tsai.

Prior to that merger a loan agreement was signed between FAF,Tx and PennCorp bringing $10 million in new capital into Houston First, and the promise of more millions to stabilize its cash flow. Shortly after this loan agreement PennCorp distributed FAF, Tx’s common stock to PennCorp’s stockholders as a special dividend as Kaneb had done with UFG-USAT stock only three months earlier. PennCorp maintained indirect control of 607,448 shares to satisfy a warrant for PennCorp stock held by AFC’s sub Great American IC.

In April 1982, FDC-FRC-MCOH filed a joint 13D with respect to UFG-USAT. In May, Drexel agreed to underwrite MCOH’s Zero(2007), completing the sale to Executive Life IC in July, netting some $13.5 million for MCOH. In August, MCOH lent funds to FDC-FRC to purchase UFG-USAT stock bringing their joint holdings to 23%. The UFG directors meeting in August saw Barry Munitz elected to the board and a unanimous agreement to merge with FAF, Tx signed in late August.

By October a plan to merge the subsidiaries USAT and Houston First was completed for FHLBB approval. In November FDC-FRC-MCOH began buying FAF, Tx shares followed in December by an agreement to merge UFG and FAF, Tx. The merger agreement was between FDC-FRC-MCOH and AFC and thus it can be presumed that FDC-FRC-MCOH controlled the destiny of UFG and AFC controlled the destiny of FAF, Tx. FDC-FRC-MCOH bought 60,200 shares of FAF on the open market from November 23, 1982 through March 4, 1983. On December 27, 1982, MCOH agreed to buy AFC’s warrants for 603,448 shares of FAF, Tx and did so on March 14, 1983. The actual merger occurred in April 1983.

Details Of The UFG-FAF, Tx Merger

The FAF, Tx shareholders, including FDC-FRC-MCOH, received 26.22% of UFG’s shares. These shareholders were PennCorp’s shareholders prior to PennCorp’s sale to Associated Madison et al. Therefore the old PennCorp shareholders, with the exception of those who sold their shares to Hurwitz or others, came to make up about a third of New UFG-USAT’s shareholders. FDC-FRC-MCOH tendered 746,998 shares of FAF, Tx and received, by the formula, 1 share of UFG for .7 shares of FAF, Tx.

FAF, Tx shareholders list:

Name FAF Shares % UFG % Post Merger
American Fin Corp 603,448 20.18% 5.28%
Burton Borman 93,620 3.13
Stanley Beyer 1.89
Barry H Sterling
Daniel J Di Sipio
Stephen a Silverman
Wayne C Winters
William W Lyon
Mary A Grigsby
Lloyd M Bentsen III
Louis B Susman

A total of 2,092,000 shares of FAF, Tx were tendered, valued at $23,016,000. The post merger shareholders of the new UFG-USAT were FDC-FRC-MCOH at 20.85% and Union Oil Co of Ca at 3.71%.

The FAF, Tx Preferred holders, PennCorp sub Pennsylvania LIC held all 2500 shares of First American’s Series A Pfd.  FA Series A controlled the vote of the board of FAF, Tx by ceding the power to the Series A holder to block the vote of the common shareholders. 275 shares of FA Series A were traded for 275 shares of UFG Series A Pfd and the remaining 2225 shares of FA Series A were traded for a UFG Senior Promissory Note with the principal amount of $13.35 million.

The FAF, Tx noteholders, PLIC also held a $9.5 million Sinking Fund Note which was converted to a second UFG Senior Promissory Note with a principal amount $9.5 million.

UFG also assumed two other loans. One for $10 million from PennCorp and the other for $2.3 million from PennCorp sub Mass Indemnity and LIC. As PennCorp merged into what eventually would become Primerica, PennCorp was composed of its prior insurance subsidiaries and thus the Pfd and UFG debt would accrue to Primerica.

Hurwitz’ Other Banking Experiences

Main Bank: Hurwitz served on the board of directors of the Bob Lanier controlled Main Bank prior to its sale to Connally and the BCCI figures Mahfouz and Pharaon in 1977. Lanier controlled San Jacinto (prior to its sale to Southmark), Fidelity Bank Houston, Port City Bank Houston, Pasadena S&L, Diran Center Savings, University S&L (which hired Connally after his bankruptcy, a sub of Entex Inc, Houston from may 1977 to December 31, 1985) and was a director of Center Savings.

Surety S&L: FDC made a bid in 1977 to purchase Surety when it had been seized from the control of Beebe associate Larry Parker. Hurwitz’ application to the FHLBB was denied because of a fraudulent presentation of the value of FDC’s distressed real estate offered as FDC’s equity in the takeover. This event sorely impressed the Bank Board which would, eleven years later, deny Maxxam’s offer to restructure UFG-USAT based upon Hurwitz’ untrustworthiness.

Security Capital-Ben Franklin SA: In 1981 Walter Mischer sells Ben Franklin SA to Security Capital Corp. FDC-FRC takes a large position in SCC and through 1982 attempts to engineer a takeover of SCC. It ends in a greenmailing in early 1982.

Public Service Co of New Mexico-Republic Savings Bank FSB: uncertain until further researched

Charter Bank: Charter is a Lanier bank whose directors include E Trine Starnes, Barry Munitz, and Andrew Alexander of Weingarten Realty Inc. The shareholders include Jim Bath who was a trustee for Mahfouz and associated with the CIA’s operations Atlantic Aviation, owned by Edward DuPont and Summit Aviation, owned by Richard C. DuPont. Another director of Charter was Aurelio Madrago of MCOR. Charter was formed from  a 1978 merger with the former Republic NB.

Control Of UFG

Contemporaneous to the merger, Carl Lindner (then controlling FAF, Tx) and Saul Steinberg (then controlling Imperial and Gibraltar) were in conversations with Milken about how to use the newly de-regulated S&L’s to finance the expansion of corporate control by financing takeovers through the purchase of Junk Bonds. Milken had built strong associations with a number of insurance and savings associations holding companies. Lindner offered his insight into the manner of taking control of large corporations.

Since Milken was conferring with Hurwitz about the Zero(2007) simultaneous to the UFG stock purchases by Hurwitz’ entities and the preparation of the merger with Lindner’s FAF, Tx leading to the subsequent sale of AFC controlled FAF, Tx shares to Hurwitz, it is tempting to conclude that Milken and Hurwitz, together, built the UFG-FAF, Tx merger for purposes consistent with Milken’s plan.

The Tests For Control

If this analysis is correct, Hurwitz controlled the destiny of UFG-USAT in actual fact. Hurwitz, his directors and officers were the leaders of the transformation of UFG-USAT which was co-engineered by the direct and constant influence of Milken and Drexel. Hurwitz’ officers were in direct control of the investments in securities and real estate. The officers included ex-officers from First City NB, Jenard Gross and longtime Hurwitz investment operative Ronald Huebsch.

The FHLBB sets the rules regarding the definition of control which includes tests for stock ownership ratios, board control, and a broad test a bank examiner calls presumptive control.

FDC-FRC-MCOH’s FHLBB Applications Re: Control

Soon after FDC-FRC purchased its first shares of UFG-USAT in early 1982, it applied to the FHLBB to purchase more than 10% of UFG-USAT but required that FDC-FRC not be defined as having control of UFG-USAT. The application was rejected. The FHLBB changed its definition of control, increasing the minimum percentage of shares owned as a test for control from 10% to 25%. The time period suggests this was part of the Garn-St Germain Act signed into law mid-October 1982. Again in June 1983, FDC-FRC-MCOH applied to the FHLBB for permission to purchase more than 25% of UFG-USAT. One year later the FHLBB approved FDC-FRC-MCOH’s application with several conditions. The primary one being that FDC-FRC-MCOH would be responsible for maintaining the networth of USAT, pro-rata to FDC-FRC-MCOH’s stockholdings up to 50% and in its entirety if FDC-FRC-MCOH were to go above 50% ownership. MCOH’s Annual Reports tell us that starting in June 1984 MCOH went into negotiations with the FHLBB on the “Networth” issue. FDC-FRC-MCOH and their successor corporations never exceeded the 25% level of ownership. In October 1987 Hurwitz claimed to never have entered into the agreement with the FHLBB to maintain networth.

It is interesting to note that Drexel revealed its ownership of 7.2% of UFG-USAT only a few months after the FHLBB conditional approval of Hurwitz’ application to purchase more than 25% of UFG-USAT.

Control From The Merger

Terms of UFG Series A Pfd provide for the election of less than 40% or as few as 4 directors to the UFG board until the loans to UFG are less than $5 million.

erms of UFG’s $13.35 million Senior Promissory Note to PLIC are for a payback of ten equal annual payments of $1.35 million starting on January 1, 1989. (Ironically this was the day after the FDIC seized USAT from UFG.)

Terms of the second Senior Promissory note to PLIC were for a payback of ten equal annual payments of $950,000 starting December 1, 1989.

Payment of the loans and the Pfd was controlled by the merger agreement to come only from UFG’s, the holding company, funds and not from USAT’s funds. This covenant necessitated one of two alternatives for UFG: earn funds from other assets, distinct from USAT or cause USAT to pay a dividend to UFG. USAT was the principal asset of its parent UFG. USAT had never paid a dividend to its parent.

Nu-West And Series B Pfd

Shortly after the UFG-FAF merger, Nu-west of Florida and UFG-USAT enter into a trade of UFG Series B Pfd, $700,000 in cash, $16 million in notes and the assumption of $2 million in debts for 7 tracts of land. One of the tracts was under a contract for sale contingent upon the sale to UFG-USAT. Nu-West had the right to name a number of directors in the event that UFG defaulted on the payment of dividends from the Series B Pfd. UFG defaulted following the seizure of USAT but N-West has not taken advantage of this power and instead is trying to force UFG into bankruptcy.

The Stockholding Test

In 1984 Castle & Cook in C&C v Hurwitz stated that Hurwitz was a control person of MCOH which in turn was a control person of UFG-USAT based upon stock ownership.

UFG Series C Pfd

UFG issues 755,000 shares of its Series C Convertible Pfd in June 1984. It is valued at $10,244,000 in March 1985. FDC-MCOH bought 726,526 shares at issuance representing 15% of UFG common upon conversion in June 1987. Series C was replaced (prior to its conversion date) by Series D in June 1987, which was replaced (prior to its conversion date) in June 1988 by Series E.

The MCOH-Drexel Option

In December 1985, Maxxam issued warrants for 250,000 shares of Maxxam common to Drexel with an exercise price of $15 per share. The alleged October dispute between Hurwitz and Milken regarding the number of warrants to be issued to Drexel resulted in the number being reduced from 500,000 to 250,000 for a difference of 250,000 shares of Maxxam common. The 250,000 warrants were valued by Maxxam at $906,000. One other change in the fees for the placement of the Zeros resulted in another difference amounting to a savings of $265,000 for Maxxam. The total difference was $1,171,000 in Hurwitz’ favor.

Hurwitz controlled 23.5% and Drexel held between 7-9.7% of United Financial Group with its subsidiary United Savings Association of Texas (UFG-USAT). In December 1985, MCOH bought a put-call option for 300,000 shares of UFG-

USAT from Drexel. The price of the option was $683,000 in cash and a conversion price of $8.59 per share. The price of UFG common, on the day the option was purchased, was $6.50. The difference in price multiplied over 300,000 shares was $627,000. The total difference was $1,310,000 in Drexel’s favor.

The Maxxam warrants may never have been exercised. They can be traced through Maxxam.s public filings until June 30, 1990, but no public record of the owners or evidence of conversion has been found. Maxxam simply ceased to mention the warrants after the conversion date passed.

The UFG-USAT option, however, was exercised by Maxxam, on August 9, 1990, as was required by the option contract, when Drexel was in bankruptcy. The loss to Maxxam was about $2,500,000 (plus the cost of the option) since UFG-USAT common was nearly worthless. Of course, the FDIC had seized USAT by this time.

It is tempting to conclude that the UFG-USAT option and the Maxxam warrants are related by virtue of the timely balance of Drexel gain from the UFG-

USAT option and Drexel loss from the reduction in the number of the warrants issued by Maxxam as a fee in the PL transaction.

UFG Stock Ownership In March 1986

Records show UFG stock held by


Cede and Co (Trust) 43.02%
MCOH 13.50%
FDC 9.80%
Drexel 3.67%
Gross 1.82%
Kozmetsky 1.42%


Oddly Drexel is known to have held 9.7% in this era with MCOH holding and option for 3.67% from Drexel. With 43% in trust and thus in all probability held by non-voting shareholders, to control UFG requires 1/2 of the remaining 57% or 28.5%. From the above it is obvious that Hurwitz, Milken, Gross and Kozmetsky controlled UFG with Hurwitz controlling Kozmetsky and Gross.

Another interesting shareholder was William Ted Phillips (1.12%) of Phillip and Jordan, Knoxville, Tenn, who was indicted in 1988 for defrauding the US government on government contracts.

Considering all sources of stockholdings attributed to Hurwitz or Drexel the figures would be


% Common Total Total
FDC-MCOH 23.3 26.97 41.97
Drexel 9.67 6 6
Totals 33 33 47.97


The Directors Test: Post-merger UFG-USAT Directors

Hurwitz had hired Munitz, placed him on UFG’s board and tasked him to prevent Hurwitz from clearly and unarguably gaining control of UFG-USAT. To Munitz this meant continuing negotiations with the FHLBB and developing UFG-USAT’s internal decision-making structure and board membership to mask Hurwitz’ actual control.

Following the UFG-FAF merger the directors consisted of three groups with distinct characteristics.

The first group, the pre-merger UFG-USAT directors, were those directors who  had survived the 1979 merger of SFG into Kaneb (none), those who survived the UFG-USAT spin-off from Kaneb (one) and those who survived from the first board formed after the spin-off (eight). This group, with the majority having served less than four months prior to the advent of Hurwitz, was leaderless, and had not developed strong working relationships.

The second group, the Hurwitz directors, were those associated with Hurwitz and who could be said to be under his control. FHLBB rules require 50% or more of the directors under a persons control before that person could be said to be a control person by this test. Hurwitz was careful to avoid establishing this type of control but succumbed in late 1987 when the exodus from the board overcame planning. The second group’s influence increased as it expanded its membership with the addition of the new officers to the board and as the first group suffered from attrition in late 1985. The second group formed the leadership group within UFG-USAT, controlling UFG’s Executive Committee and USAT’s Investment Department from their inception in 1984.

The third group, the PennCorp directors, were those associated to PennCorp, which, by virtue of its UFG Series A Pfd ownership, placed four directors on the board.

The directors present on the board following the merger were

Group One: Pre-merger UFG-USAT Directors

James R. Whately: the sole survivor from the Kaneb days, Whately was a director of Kaneb Services, joined the UFG-USAT board in 1979 and remained through at least 1992. He served on the Executive Committee.

C.E. Bentley: was the President of Abilene SA which was merged into USAT in late 1977. He joined the board in 1981, served as chair from 1983 until 1985 and as President and CEO in 1984 when Hurwitz replaced him in those roles. Bentley resigned when things were jumping into high gear in November 1985 and Hurwitz replaced him as Chair. He served on the Executive Committee.

B.D. Holt: was the CEO of B.D. Holt Co, a Texas distributor of Caterpillar equipment (Affinito sat on Caterpillar’s board) and a director of First Bank of Corpus Christie. He joined the board in 1983 and left with Bentley. In late 1984 FDC sold its sub FRC to Holt Corp.

T.C. Campbell: was a private investor and a director of the Bank of Commerce, Abilene. He joined the board in 1981 and resigned with Bentley.

Barry B. Putegnat: was the President of Model Laundry and Dry Cleaning Co. He joined the board in 1981 and left with Bentley.

L.L. Duckett: a lawyer and a 20% investor in an SA previously merged into USAT. He joined the board in 1981 and left with Hurwitz in 1988.

Edgar H. Keltner Jr.: a lawyer and director of Southland Royalty Co. He joined the board in 1981 and left with Hurwitz.

Charles A. LeMaistre, M.D.: a cancer specialist at the U of T and a director of Houston Natural Gas Corp. A well respected and connected doctor who joined the board in 1981 and left with Hurwitz.

James A. Coles: was the CEO of Imperial Corp of America and a director of TICOR Mortgage Insurance Co (TMIC). He joined the board in 1981, served as CEO and President in 1983, and left with Hurwitz.

Imperial Corp was controlled by Milken intimate Saul Steinberg who, in 1982, broke Imperial Corp into two operations Imperial and Gibraltar.

Group Two: Hurwitz Directors

Charles Hurwitz: The Black Hat. Joined the board in 1983 as part of the UFG-FAF merger agreement. He had been placed on the FAF, Tx board following the agreement with AFC to merge UFG and FAF,Tx. He resigned in April 1988. He served as President and CEO in 1985 giving way to Jenard Gross in 1986. He was chair from Bentley’s resignation until his own resignation. He served on the Executive Committee directing the strategy for USAT’s transformation.

George Kozmetsky: He joined the board at the same time, in the same manner as Hurwitz, and left with him in 1987.

Barry A. Munitz, Phd.: The White Hat. Joined the board in 1982 when he was recruited away from the University of Houston to serve in many Hurwitz entities as the architect of internal corporate communications and liaison for governmental relations. He served as President of the Executive Committee from its inception until its demise in 1988. He resigned in 1992 to clear his path to become the Chancellor of the California State University System.

Lawrence J. Trevino: He was the Comptroller in 1983, served on the board in 1984 then he resigned.

James L. Pledger: a lawyer, now the Texas Bank Board Commissioner. He was on the board and Secretary to the board only in 1983 and rejoined UFG-USAT as VP and Secretary during 1985 and 1986.

Gerald R. Williams: He was recruited from the First City National Bank, Houston to serve on the board from 1984 through January 1986 and to serve the board in various capacities at USAT including Executive VP, CEO and President. He served on the Executive Committee. UFG loaned him $181,000. The First City NB’s connection to UFG-USAT and Hurwitz includes the recruitment of other USAT officers such as Michael R. Crow, Bruce F. Williams, who served as VP and Treasurer, and perhaps James R. Walker who was recruited from a large Texas bank’s holding company and served USAT in marketing and branch administration. First City was under Vinson-Elkins control, John Connally, Wlater Mischer and WRI’s Bernard Weingarten served on its board, Khalid bin Mahfouz was a large stockholder and Ahmed Mannai borrowed from First City to finance his holdings in UFG-USAT’s affiliate, Houstonian/Livingwell. Maxxam had a large investment in First City in 84 and 85 and MCO had an oil purchase agreement with First City. Williams served on the Executive Committee and as a director of the finance subs.

Michael R. Crow: recruited as was Williams from First City to serve on the board in 1984 and again in 1988. He also served as Senior VP and with Williams and Gross took his turn at CFO or CEO of USAT. Crow also borrowed funds from UFG. Crow served a  director of the finance subs.

Jenard M. Gross: He was President of Gross Investments and resigned to become CEO and Chair of USAT in 1984. He also owned Gulf Coast S&L until 1984. He was a consultant to USAT from mid-1984, joined the board in 1985, replacing Williams, and served as UFG-USAT CEO and President until he was forced to resign under FHLBB pressure in November 1988. He also served with Hurwitz on the board of one of USAT’s major investments, the Texas and Florida based Weingarten Realty Inc. He left the UFG-USAT board with Hurwitz. After he left he restarted his business and began with business dealings involving Kosberg and Southmark. Gross had a loan from USAT in excess of $750,000. Gross served on the Executive Committee and as a director of the finance subs.

Arthur S. Berner: from Inexco Oil Co. He served as Senior VP, Corporate Counsel from 1985 to 1987 and Secretary to the board when he was a member in 1988. Berner served as a director in the finance subs.

Paul N. Schwartz: a longtime Hurwitz board member, he replaced Hurwitz on the board. He now serves on Hurwitz’ racetrack board in Houston.

Group Three: PennCorp Directors

Barton Borman: was the CEO of PennCorp and Chair of both FAF, Tx and PLIC. He joined the board in 1983 and left with Hurwitz.

Wayne C. Winters: was the President of FAF, Tx and previously with American S&LA. He joined the board in 1983 and left in 1986. He was not replaced by PennCorp.

Stephen R. Silverman: a lawyer. Joined the board in 1983 and left with Hurwitz.

Barry H. Sterling: a lawyer. Joined the board inn 1983 and left with Hurwitz.

The Presumptive Control Test–Formation Of The Executive Committee

In early 1985, UFG-USAT formed an Executive Committee to determine USAT’s restructuring and investment strategy. The original members are Hurwitz, Munitz, Bentley, Whatley and Williams. Two members of the Executive Committee resign within a few months of each other. Bentley resigns in November 1985 and Williams in January 1986. Munitz is President of the Committee for its entire history.

Development Of Strategy: The Transformation Of USAT

In 1984 UFG-USAT set upon a strategy of MBS, CMO, brokered CD’s sales, and Junk issuances to raise funds to buy Junk.

Drexel’s MBS sales to USAT began with the start of Drexel’s sales in the summer of 1984 when USAT bought $250 million in MBS’s and quickly increased to $6.5 Billion in 1986. In the Fall 1988 USAT lost $100 million in MBS’s.

Additional sales of $1 billion in CMO’s were sold in January 1986, $200 million more in March and $575 million more in April 1986 through USAT Mortgage Securities Inc.

Jumbo Certificates and Telemarketing, brokered CD program began in November 1984. On December 31, 1986 negotiated or brokered CD’s represented 47% of the deposits or $1.5 billion.

The effect of the strategy was to change the ratio of dollars spent on MBS’s and Corporate Securities from one out of every five dollars spent in 1984, to two out of three in 1985 and 3 out of 4 in 1986.

Junk Bonds represented 97.4% of all corporate securities held by USAT in 1986. It had a huge Junk Bond portfolio which was described by Louis Ranieri as “80% Bologna.” Ranieri described the investment decision-makers as wheeler-dealers.

The amounts USAT had involved in the trading of investment securities including junk bond, risk arbitrage, CMO’s and MBS’ are


1983 $   507 million
1984 $ 1,395 million
1985 $ 6,069 million
1986 $18,922 million
1987 $15,768 million


when USAT came under restrictions for maintaining networth.

Parent Only -The Deals That Made The Dividend

At the end of 1985 UFG reported its income as $60 million and the sources of this income as $20 million borrowed, $32 million as a dividend from USAT and $8 million as what UFG calls “other.” The use of the funds are listed as $56 for Investment Securities and $1 million as payment for dividends on UFG’s Pfd stock.

The dividend from USAT was the first and only dividend USAT was to pay its parent UFG. USAT is made to declare the largest net gain in its history which it attributes to three events. The net is in excess of $50 million and its sources are the sale  of Castle & Cook stock for a $7 million gain, the sale of $500 million in loans it received from the merger with FAF, Tx for a gain of $12.4 million and the sale of 20 branch offices to Independent American SA for a gain of $81.5 million. USAT also reported gains of $12.4 from the sale of MBS’s and $33.3 million from the dividends or profit from sales of investment securities.

The dividend provided capital from which UFG attempted to make a profit by which to pay its officers and employees, such as Barry Munitz; and by which to paydown its debt and to pay the dividends on its preferred stock. UFG’s debt and pfd dividends due could only come from its own funds and not those of USAT thus making the dividend a necessity if UFG was to meet its obligations.

Castle & Cook

On October 14, 1983Hurwitz attacks Castle & Cooke (C&C) through United Financial Corp. (UFC), a subsidiary of USAT.  UFC & MCO Holdings. C&C owns 150,000  acres in Hawaii; the entire island of Lanai and the 5,700 acre Sea Ranch in California. UFC is a subsidiary of USAT. Hurwitz is chairman of UFC Board.

In December 1983, MCO Holdings, which had begun buying Castle & Cook stock in October, halted its purchases short of HSR limit. MCOH-UFG file 13D claiming C&C stock for investment purposes only.

On March 9, 1984, Hurwitz threatened a takeover if not “greenmailed”

by C&C. This attempt at a takeover using insured deposits was halted by a Federal court when on March 12, Hurwitz was restrained by thecourt, C&C sues H for false 13D filing, using USAT deposits for takeover bid & failing to disclose “excessive unsecured loans”.

On March 15 Hurwitz filed a 13D on C&C @ 11.8%. In April, Hurwitz “greenmails” C&C. USAT’s share of the $13 million total is said to be $7 million.

Branch Sales

In early 1984 UFG-USAT contracted with Salomon Brothers and Goldman Sachs to sell up to half of USAT’s 90 branches. In September 1984, UFG-USAT sold 20 branches to Independent American SA. The sale of 20 branches to IASA traded $647.9 million in deposits for $550.2 million in longterm notes payable. This sale built USAT’s networth to allow the issuance of a dividend to UFG and to allow the purchase of large amounts junk bonds. This sale is not listed in Goldman Sachs records as a sale by Goldman. The records of Salomon Brothers are not available to us on this issue.

From 1984 through 1988 USAT disclosed several other branch office sales either which were completed (with IASA and Guarentee Federal), or applied for and rejected by the FHLBB (with Sunbelt and North Park).

Home Savings Assoc bought 6 branches in San Antonio on December 31, 1985.

Formation Of Investment Department

The Investment Department was formed in July 1984 “to co-ordinate the investment of brokered CD proceeds in corporate securities…The emphasis will be on corporate bonds and Mortgage Backed Securities…and in addition the group plans to launch an investment advisory service for small savings and loan associations.”

Ron Huebsch was hired to be the VP of the Investment Department which served the Executive Committee.

Ron Huebsch left the Fairfield Fund in 1969 to join Hurwitz’ Summit Marketing & Research as Portfolio Manager. That year the Fairfield Fund was accused by the SEC of inside information abuses but claims to have been entrapped by the SEC. Huebsch left SMR in 1972, to join F S Smithers for one year. During that year the NYSE cited Smithers for Debt/Capital ratio violations and Smithers was fined $10,000. In 1974 Huebsch rejoined Hurwitz as Portfolio Manager at Summit Insurance Company of NY, a sub of SMR. He also served as a consultant to Federated Development Company. In 1975, he left SICONY as SICONY is declared insolvent due to high risk taking as cited in Lennon v SGI, SMR, FDC, Hurwitz and Oster. The allegations in this action included the breach of fiduciary responsibilities to SICONY and the fraudulent use of corporate funds causing SICONY to pay $2 million to its parent Summit Group Inc.

In 1976, Huebsch became a director of Federated Reinsurance Corp and served as Vice President of FRC from November 1977 forward. During the years 1980 through at least 1982 he was President of Federated Securities Ltd.

Glen Kassan, in a deposition claimed Huebsch worked for FDC during the PL takeover era 1984-1985 and acted as advisor to Maxxam’s investment managers. Kassan, when discussing his role in the PL purchases cites Hurwitz, Rosen and Huebsch, a member of FDC, as his advisors.

In 1987 Hurwitz “thinks” Huebsch is with FDC.

Formation Of Investment Committee

In early 1987 UFG-USAT reports that the investment portfolio managers are supervised by an investment committee. The committee was made up of senior management which would include Gross, Gerald Williams (until January 1986) Crow, Huebsch and Bruce Williams. The finance subs were run by Gross, Crow, Berner, Williams, James L. Wolfe and the various Wilmington Trust-to-Centrust interlocking directors. Gross was a real estate developer, the Williams’ and Crow were bankers, Berner was a lawyer and Wolfe a CPA. Leaves one to conclude that the decision-making resided with Hurwitz and Huebsch. The team, we are told, generated millions “in sales of government backed mortgages and corporate instruments…(which UFG-USAT) plans to increase…” Within the year the “market downturn” resulted in “a sharp decrease in profitability.”

Lindner and Drexel

Contemporaneous to the 1982 merger of UFG and FAF, Tx, Carl Lindner (then controlling FAF, Tx) and Saul Steinberg (then controlling Imperial and Gibraltar) were in conversations with Milken about how to use the newly de-regulated S&L’s to finance the expansion of corporate control by financing takeovers through the purchase of Junk Bonds.

Another major player in the Drexel network entered the Hurwitz scene in 1982, and lined up a deal which was to nearly double the size of USAT by early 1983.  This was Carl Lindner of American Financial Corporation, now most known for his ties to the infamous Charles Keating.  (Keating was an Executive Vice-President and director of American Financial Corp. (“AFC”) prior to 1979, and also a founding partner of the law firm Keating, Muething & Klekamp, which represented AFC.  In July 1979, an SEC judgment entitled SEC v. Keating, Muething & Klekamp against Lindner, et al., enjoining them from self-dealing in an Ohio bank subsidiary.)  The same year, Keating bought Continental Homes of Phoenix from Lindner and renamed it American Continental Corporation, which then bought Lincoln Savings & Loan in 1983 with Drexel-issued junk bonds.

Lindner’s AFC had a subsidiary called PennCorp Financial which, in turn, had a subsidiary called First American Financial of Texas (FAF).  FAF had a subsidiary called Houston First American Savings Association (Houston First), which had 36 branches.

In February 1982, just as the UFG takeover was occurring, UFG  signed a loan agreement with FAF and PennCorp.  PennCorp at this time distributed 2.9 million shares of FAF as a dividend to PennCorp’s shareholders, and retained 600,000 shares.  In August 1982, when Hurwitz was already in control of UFG, an agreement was signed between UFG and FAF to merge; a deal was made between MCO Holdings and AFC to accomplish this in August, and signed in December 1982.

Thus, United Financial Group (UFG), newly acquired by FDC and MCOH, merged with First American Financial (FAF), and the respective subsidiaries, USAT and Houston First, also merged.  An additional 36 branches were added to USAT’s 58 branches, making a total of 94 branches when the merger was completed in April 1983.  However, 4 branches of USAT were sold in November 1982 to Olney Savings Association for a $6.6 million gain for UFG, so the total branches in April 1983 may have been 90.   Houston First’s assets were $1.5 billion according to a 6/30/82 financial filing.

Early in January 1983, Hurwitz, personnally, bought 44,000 shares of “FAF of California”, a separate corporation.  This may have been a mistake or a mistaken entry by the SEC’s publication, because in March 1983, FDC bought 663,648 shares of “FAF of Texas” to increase their holdings.  FAF,Ca had John H Sculley and John H Roberts Jr (see Rosenberg) as directors. Hurwitz and Kozmetsky were elected to the FAF,Tx Board in January 1983, before the completion of the merger in April.

The April 1983 merger of UFG and FAF provided $1.1 billion in a loan portfolio to UFG.  During that month, FDC traded 7.4 million shares of FAF for 523,000 shares of UFG, and 2 million shares of UFG were issued to FAF stockholders.

UFG, now doubled in size and firmly under Hurwitz’ control, used a subsidiary called United Financial Corporation (UFC), to attack, in March 1983, Castle and Cooke Corporation.  MCO Holdings also participated in the attack.

Imperial became the focus of a takeover attempt by a reputed mob family from Chicago before control was established in 1984 by Milken through Columbia S&L. Gibraltar was sold to Hurwitz intimate J Livingston Kosberg who transformed it as Hurwitz was to transform USAT. TMIC a sub of TICOR was seized by the California Insurance Commissioner in 1987. TMIC insured $140 million in USAT loans. TMIC was liquidated.

Milken had taken positions in other S&L’s. In Centrust, Imperial and Columbia S&L for example.

In March 1985, the Columbia S&L stockholders included Drexel Groups (10.2%), Sandler (acting for Milken) (9.9%), Integrated Resources, Inc. (Harvey Eisen) (9.8%), Ivan Boesky (9.8%), Sosnoff (9.7%).  Milken controlled the Drexel Groups. At the beginning of 1985 Maxxam held shares of CenTrust Preferred stock too.

In 1986 USAT ranked fourth amongst S&L’s in junk bond holdings as a percent of total assets behind Columbia, Imperial and Centrust. As to dollar amounts, USAT was tied for third with Centrust behind Columbia and Imperial.

Hurwitz Savings and Loan USAT 2 >>