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Wall Street Journal January 26, 2000 --- Green Group Seeks to Link S&L to Trees ---- By Marc Lifsher OAKLAND -- A local environmental group is calling for Houston-based Maxxam Corp. to consider an unconventional "debt-for-nature" swap if the company loses a fight with U.S. regulators. For five years, the U.S. Office of Thrift Supervision has been involved in an enforcement regulatory proceeding with Maxxam before an administrative-law judge in Washington, D.C. The government alleges that Maxxam and its chairman, Charles Hurwitz, unlawfully exercised control of the former United Savings Association of Texas and its holding company, United Financial Group Inc., but failed to see that the thrift met capital-adequacy requirements. The complaint also describes allegedly unsafe securities trading and improper real-estate lending that contributed to the 1988 failure of the savings and loan and a $1.6 billion loss to taxpayers. The government in a post-hearing brief last Oct. 4 is asking Maxxam to pay $821 million in restitution. Now, as a Jan. 31 deadline nears for filing final legal briefs, the environmental group -- the Rose Foundation for Communities and the Government -- is urging the government to ask for a so-called debt-for-nature swap instead of a restitution payment. In the suggested swap -- described in a widely distributed, 30-page legal and financial position paper -- Maxxam would give the government as little as 8,000 acres and as many as 63,000 acres of timberland owned by Maxxam's Humboldt County subsidiary, Pacific Lumber Co., suggests Rose Foundation President Jill Ratner. "This seems like a possibility to salvage something of value from the savings-and-loan debacle," she says. The U.S. government has indicated it is at least open to the possibility of considering such a debt-for-nature swap. An Oct. 1995 letter from Federal Deposit Insurance Corp. Chairman Ricki Helfer to former U.S. Rep. David E. Skaggs of Colorado states: "You may be assured that the [FDIC] remains open to any appropriate settlement of its claim, including a debt-for-nature swap." In another letter, dated Aug. 23, 1994, John V. Thomas, associate general counsel of the FDIC writes to one Larry Helbrook of Eleva, Wis.: "We are mindful of the possibility that if Pacific Lumber's parent company can be held liable for [United Savings] losses, issues involving the redwood forests might be brought into play." For its part, Maxxam dismisses the swap suggestion. Ms. Ratner's plea for a debt-nature trade is based on an absolutely "flawed premise" because "there is no debt," says Maxxam spokesman Joshua Reiss. Maxxam and Mr. Hurwitz, he says, did nothing wrong: Maxxam (then known as MCO Holdings Inc.) didn't own a controlling interest in United Savings' holding company and, therefore, wasn't responsible for maintaining capital levels at the thrift. United Savings went under, says Maxxam in a written summary of its Thrift Supervision case, because of the "`boom' and then `bust' cycle of the energy and real-estate markets [in Texas] at that time." In fact, says Mr. Reiss, the government's case is simply a "politically motivated" effort inspired by the Rose Foundation and its environmental allies to force Maxxam to give up a portion of its California timberlands. Maxxam lawyers say the voluminous legal record in proceedings brought by the Federal Deposit Insurance Corp. in U.S. District Court in Houston and the Office of Thrift Supervision administrative hearings in Washington, D.C., reveals a regular flow of communications and lobbying by environmentalists with federal regulators, Democratic congressmen and the White House on behalf of various debt-for-nature proposals. Indeed, the volume of communications between environmental groups and regulators concerning Maxxam totals "thousands of documents," Thrift Supervision wrote to Maxxam attorneys in a Jan. 13 response to a federal Freedom of Information Act request from the company. For her part, Ms. Ratner doesn't deny that she regularly communicates with Thrift Supervision and, in fact, provided it with detailed analyses of possible land-swap deals. "We're citizens; we communicated with the folks in government, which I think was within our exercise of free speech," she says. "But, I think it would be extraordinarily arrogant of me to believe that we convinced them to do something they were not planning to do anyway." Her latest position paper, she says, is particularly germane now that final briefs are due in the Thrift Supervision, and "the parties are going to have to get realistic pretty quickly" about a possible settlement. Moreover, argues Ms. Ratner, the lands that might become available in a debt swap hold little current economic potential for Maxxam, since logging on them is restricted as part of a March 1999 agreement with federal and state governments. The deal provided $450 million in public funds and property exchanges for the purchase of 5,600 acres of Pacific Lumber's Headwaters redwood forest in northern Humboldt County. Accompanying regulations also call for Pacific Lumber to curtail cutting on upward of 33,000 acres of environmentally sensitive land it still owns. The Maxxam case, including any possible settlements, is no different than any other regulatory action stemming from the 1980s savings-and-loan scandal, says Thrift Supervision spokesman Bill Fulwider. "This has nothing at all to do with environmental or political matters," he says. "We weren't in cahoots with anybody." Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved. -- ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Karla James The Rose Foundation for Communities and the Environment 6008 College Ave., Suite 10 Oakland, CA 94618 510/658.0702 v 510/658.0732 f kjames_rose@earthlink.net ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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