FDIC Asks Appeals Court to
Drop $72.3 Million Fine
Against Charles Hurwitz
TOM ABATE / San Francisco Chronicle 8aug2007
Charles
Hurwitz's Maxxam Corp. |
The Federal Deposit Insurance Corp. asked a federal appeals court in New Orleans Tuesday to overrule a Texas judge who had ordered the agency to pay a $72.3 million fine for bullying financier Charles Hurwitz, whose Maxxam Corp. controls Pacific Lumber.
In essence, the FDIC, the agency responsible for insuring bank accounts, is trying to overturn a victory that Hurwitz won two years ago in a federal court in his hometown of Houston.
In that 2005 ruling, a U.S. district judge found that bank regulators had browbeaten Hurwitz into selling some old-growth redwood trees for preservation in public parks.
The appeal, which should be decided by year's end, is one of several controversies that have spun out of Hurwitz's 1986 takeover of Pacific Lumber, the Humboldt County logging firm that is going through bankruptcy hearings in a separate federal proceeding in Texas.
In his August 2005 ruling, U.S. District Judge Lynn Hughes described the FDIC as being part of "a secret society of extortionists" who had been allied with "green groups" in a 1990s bullying campaign sanctioned by President Bill Clinton's administration. Hughes fined the FDIC $72.3 million as punishment for its malfeasance.
In arguments presented to the appellate court Tuesday, the FDIC argued that its initial investigation of Hurwitz had been justified and, even though it ultimately dropped its case against the financier, its actions were justified and in no way warranted such a big fine.
The roots of the FDIC's investigation into Hurwitz and Maxxam stretch back to the mid-1980s, when the Texas financier, working with the now-defunct junk-bond firm Drexel Burnham Lambert, engaged in business dealings that involved a Texas savings and loan institution called United Savings.
After United Savings went belly-up in 1988, costing taxpayers $1.6 billion, the FDIC and other federal regulatory agencies started trying to figure out who should be held responsible.
While various federal agencies were poring over Hurwitz's affairs as a result of his involvement in that S&L collapse, he was counter-punching in federal court, where he filed a 1997 lawsuit against the FDIC for what amounts to bullying.
In these entwined legal battles, Hurwitz has won on most counts. Although he paid one fine of $206,000, the federal bank agencies dropped their investigations, and Hurwitz went into the appellate court Tuesday as the victim - while the FDIC had to argue that the Texas judge who sided with Hurwitz had erred in finding the federal agency a bully.
"The district court's opinion was inaccurate and unfair," FDIC lawyers argued in their brief, saying that it looked into Hurwitz's role in the S&L collapse after it had learned "that enormous financial loss (had) resulted from (Hurwitz's) wrongful acts."
source:10aug2007
Background Article
FDIC Ordered to Pay Financier $72 Million
Judge Denounces Debt-for-Trees Deal
TERENCE O'HARA / Washington Post 25aug2005
A federal judge in Texas, calling the Federal Deposit Insurance Corp. a "corrupt agency with corrupt influences on it," awarded a Houston financier $72 million to cover his legal fees in a decade-long suit involving a failed savings and loan and the government's efforts to take control of a stand of endangered California redwood trees in the 1990s.
The FDIC, a regulatory agency that insures deposits at banks and savings and loans, filed suit against Charles E. Hurwitz in 1995, seeking to collect more than $800 million because Hurwitz indirectly controlled a Texas S&L that failed in 1988. The FDIC, after a series of legal setbacks, dropped its suit against Hurwitz in 2002. Hurwitz then asked the U.S. District Court judge overseeing the case, Lynn N. Hughes, to order the FDIC to pay his legal expenses, arguing that the FDIC should never have brought the case in the first place.
On Tuesday evening, Hughes issued a scathing, 131-page ruling. In it, he cited evidence that the FDIC brought the case largely because of pressure from environmental groups, members of Congress and the Clinton administration. The reason: Hurwitz's Pacific Lumber Co. owned 3,500 acres of endangered redwoods in Northern California. Hughes found 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 his trees in exchange for his supposed liability in the failure of the United Savings Association of Texas.
Judge Hughes, in his ruling, found that FDIC officials lied about the reasons for bringing the 1995 suit against Hurwitz.
Hughes said FDIC officials and lawyers, in depositions, "ranged from manipulative evasiveness to plain perjury." He cited records of two years of communications, including extensive discussions of legal strategy and political matters, between the FDIC and environmentalists over the proposal to use a banking-practices lawsuit as pressure on Hurwitz to give up the redwoods.
Hughes said FDIC officials "discarded the mantle of the American Republic for the cloak of a secret society of extortionists. If the vice president called, they responded. If a congressman called, they responded. If a lobbyist called, they responded. They heeded every call but that of duty and honor."
David Barran, an FDIC spokesman, said the agency will appeal the ruling.
"This is certainly one of the most imaginative and colorful opinions in banking law," Barr said. "Judge Hughes has been overturned twice by the 5th Circuit in this case, and we're confident that history will repeat itself."
Hughes was appointed to the U.S. District Court for the Southern District of Texas in 1985 by President Ronald Reagan. In 20 years, he has gained a reputation for issuing strongly worded opinions, several of them accusing the government of overreaching in criminal and civil cases. In 1998, the U.S. Court of Appeals for the 5th Circuit twice overruled Hughes's decision to unseal internal FDIC legal memoranda in the Hurwitz case.
In an interview yesterday, Hurwitz said he felt vindicated. "It's an enormous burden to be sued by the government for a billion dollars," he said. "It's different than when you're sued by another corporation or an individual. There's a higher standard to overcome. I've thought about it every day for 10 years . . . You have to ask, what was this case for? Why did they bring the biggest case ever against me? It was for some trees."
The federal government and California bought the trees from Hurwitz in 1999 for $480 million.
The case is one of the longest-running and most political lawsuits arising out of the S&L crisis of the late 1980s and early 1990s, in which more than 1,000 S&Ls failed at a cost to taxpayers of about $200 billion. Several former thrift owners have won legal settlements against the government for breach of contract after Congress passed a 1989 law that rendered many thrifts insolvent.
But this is the only case won by a former thrift owner alleging a political vendetta against him by regulatory authorities, according to James J. Butera, a District banking lawyer who has represented several thrifts in cases against the government.
"A lot of banking lawyers representing these thrift owners will be looking at this ruling very carefully," Butera said. "For an individual plaintiff to prevail against the government in the banking area, it's highly unusual. The power of the regulators is almost plenary."
source: 10aug2007
Mindfully.org note: Useful background. . .
- Texas corporate raider Charles Hurwitz, with the help of junk-bond broker and convicted felon Michael Milken, looted and crashed a Savings and Loan, United Savings Association of Texas (USAT), costing U.S. taxpayers a staggering $1.6 billion!
- With looted money funneled from the S & L, Hurwitz engaged in a hostile takeover of the Pacific Lumber Company, commenced rabid clearcutting, and tripled the rate of logging of the world's largest stands of privately held ancient redwood forests, including Headwaters Forest, a precious, sacred and irreplaceable international treasure of the ages.
- Hurwitz simultaneously raided Pacific Lumber's worker pension fund, removing $55 million from the retired loggers and millworkers' nest egg, and began raping the company, selling off much of it's other liquitable assets for the quick cash he needed to make his pressing junk bond payments.
- Hurwitz had previously looted the Simplicity Pattern worker pension fund in 1982, reducing worker benefits by nearly $4000 per year.
- Hurwitz has entered into out-of-court settlements for insurance fraud, securities violations and a land swindle of his own company's shareholders! Hurwitz has lost seven environmental lawsuits over his incessant, illegal logging in these ancient redwood forests of Northern California.
- More from Jail Hurwitz website
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