Judge orders FDIC to pay Hurwitz
A judge ordered the Federal Deposit Insurance Corp. to pay Houston financier Charles Hurwitz $72.3 million as part of a scalding sanction accusing the banking regulator of corruption.
It’s the latest twist in a case rooted in the savings and loan scandals of the 1980s.
In a written statement, Hurwitz said he felt redeemed by U.S. District Judge Lynn Hughes’ order and hopes the sanction will prompt FDIC reforms. Hurwitz’s company, Maxxam Inc., owns a controlling interest in Kaiser Aluminum Corp.
The FDIC sued Hurwitz a decade ago, blaming him for the $1.6 billion failure and subsequent government bailout of United Savings of Texas.
The agency, born in the Great Depression to insure the bank deposits of Americans, sought $250 million in damages. In a parallel case, the federal Office of Thrift Supervision sought $820 million from Hurwitz.
The case was closely watched by members of the Steelworkers union, who distrusted Hurwitz since his leveraged buyout of Kaiser and blamed him for the company’s later bankruptcy.
Steve Powers, regional Steelworkers official, said of Hughes’ decision: “It seems that Hurwitz has been handed a pass. In some ways, it says a lot about what’s wrong with America.”
The government’s legal efforts were a struggle from the start. Political influence and legal maneuvers stunted the government’s attempts to recover money from the United Savings debacle.
Finally, the OTS settled its massive case for a mere $206,000 and the FDIC dropped its claim.
Hurwitz then pressed a counterclaim, and this week Judge Hughes agreed the entire case should have never happened and ordered the FDIC to pay the legal costs of Hurwitz and Maxxam.
“They will recover their costs because the record reveals corrupt individuals within a corrupt agency with corrupt influences on it, bringing this litigation,” Hughes wrote in his decision.
The government claimed Hurwitz took over the Texas thrift in 1984 as a tool to make risky investments in the heyday of deregulation, such as buying junk bonds from notorious financier Michael Milken.
Regulators also alleged that Hurwitz had used his doomed thrift to finance the Kaiser takeover in 1988.
Hurwitz denied such banking practices and blamed the thrift’s failure on real estate losses. He never owned United Savings, but controlled 25 percent of the thrift’s holding company through his own firm, which later became Maxxam.
Kaiser Steelworkers have long believed the worst about Hurwitz. Many personally blame him for Kaiser’s two-year strike and lockout that caused financial and emotional distress to thousands of Spokane workers.
Also, they blame him for Kaiser’s collapse into bankruptcy that erased some medical benefits for retirees and reduced pension plans for workers.
The FDIC said it plans to appeal the decision, according to a report by Reuters, which also said Hughes has already been overruled twice in the case.
In his order, Hughes wrote that should an appeals court set aside sanctions, it still could allow recovery of Hurwitz’s $15.3 million in legal costs.
The judge’s order was critical, calling the government’s case a “perverse combination of personal and political hostility.”
He accused FDIC officials of lying under oath and slandering Hurwitz by linking him to Milken and his junk-bond financing activities.
Hurwitz is largely out of Kaiser’s business activity now. The aluminum company’s plan of reorganization will render his controlling interest worthless when Kaiser emerges from bankruptcy protection, which could occur later this year.