Tree Ring Circus
1986 Houston businessman Charles Hurwitz buys a lumber company in California. 1989 The feds investigate Hurwitz for his role in the failure of a Texas savings and loan. 1990 Environmentalists organize Redwood Summer to protest Hurwitz’s logging practices. 1995 The feds sue Hurwitz for more than $1 billion in an effort to get control of his redwoods. 2005 A federal judge dismisses the suit and awards Hurwitz $72 million in damages. Your tax dollars at work.
WHEN THE FEDERAL GOVERNMENT sued Houston financier Charles Hurwitz in 1995 for more than a billion dollars, it seemed to many people that one of America’s most corrupt and notorious businessmen had finally been run to ground. He was accused of looting one of the biggest savings and loans in the state, United Savings Association of Texas, whose 1988 failure had cost taxpayers $1.6 billion. It was the usual, dreary story of eighties-era chicanery, said the government’s lawyers: Hurwitz had invested in high-risk junk bonds in collusion with his pal Michael Milken, the convicted stock felon; gambled with depositors’ money; and enriched himself while the company suffered staggering losses. The size of the suit seemed to match the scope of the skulduggery: It was one of the biggest cases ever mounted by the government against a banker.
Nor were Hurwitz’s predations limited to the banking world. By the time he was sued for destroying United Savings, he had already established himself as the principal enemy of the environmental movement in the American West, which saw him as a sort of implacable, Mephistophelian corporate predator. The story goes like this: Wielding Milken’s bonds, Hurwitz had engineered the hostile takeover in 1986 of a family-run, environmentally friendly California timber company called Pacific Lumber, which owned the largest private stands of old-growth redwoods in the United States. In order to pay off his crushing junk bond debt, Hurwitz both raided the company’s pension fund and doubled the harvest of the ancient trees, heedlessly destroying forests, habitat, and endangered species. His strategy was to strip the company and its forests bare and ship the profits back to Houston.
If the “rape of the redwoods” story sounds familiar, that’s because it has been splashed in headlines across the country for the past twenty years. It has been featured in countless newspapers and magazines and on television shows such as 60 Minutes. If you have heard of the endangered spotted owl or seen pictures of protesters in redwood trees, it is almost certainly because of Charles Hurwitz. The stories told how Wall Street greed had turned chain saws loose upon the pristine, mist-shrouded forests of the Northwest, how a raider from Houston had ruined a great, iconic American company. The parable was so pointed, so neatly Manichaean, and so easily grasped that it was impossible to resist, and almost no one in the media could. That the government had fingered Hurwitz as one of the chief scoundrels of the savings-and-loan scandal only made the story better.
There was just one problem. It wasn’t true. Virtually every statement in the first two paragraphs of this story is false. Charles Hurwitz did not cause the failure of United Savings. He did nothing wrong at all, in fact: no fraud, no self-dealing, no mismanagement, not even what might loosely be construed as negligence. The media’s version of what happened at Pacific Lumber is likewise deeply flawed, as was the moral fable on which most of the stories were based. When Hurwitz bought the company, Pacific Lumber was not family run, nor was it especially environmentally conscious, and his takeover was in no way hostile. He did not, as dozens of major newspapers and magazines in the country had it, have to double his tree harvest to pay off his debt, nor did he do anything wrong with Milken’s firm, Drexel Burnham Lambert, or illegally drain the company’s pension or strip out profits and send them to Houston. He did nothing to trees and habitat and species that had not already been done by every other timber company in the Northwest, including Pacific Lumber.
His innocence did not protect him, however, from the longest and most expensive lawsuit ever mounted by the government in a banking case, one in which the twin bogus legends—redwoods and finance—became weirdly intertwined. There were two suits, actually, though both originated with and were coordinated by the Federal Deposit Insurance Corporation (FDIC), the agency that regulates banks. They lasted, from early investigation to final verdict, some seventeen years, produced more than two million pages of documents, and consumed more than $100 million in legal costs for both plaintiffs and the defense. The saga finally came to an end last August, when Houston federal judge Lynn Hughes wrote a blistering 133-page decision that assailed the FDIC’s staff “for its betrayal of public trust [and] its vindictive political assault on a private citizen” and called them “corrupt individuals within a corrupt agency.” For its actions, which Hughes said included perjury on a grand scale, the FDIC was slapped with an unprecedented $72 million sanction—the largest verdict ever against an agency of the United States government. “They were not content with stealing from Hurwitz,” wrote Hughes. “Through this case they sought to ‘cause him pain.’ They sought to humiliate him.”
Indeed, even more astounding than the size of the award was the ruling’s central thesis: that an arm of the government, backed by environmentalists and the Clinton administration, had brought a completely baseless suit against an American citizen whose sole purpose was to punish him financially and scare him into surrendering a forest of old-growth redwood trees. The scheme against Hurwitz even had a name: “debt for nature.” The FDIC would sue Hurwitz to create “debt” and then liquidate the debt by forcing him to give up his trees (“nature”). Such a political attack may seem implausible. In fact, the FDIC’s lawyers have repeatedly denied, under oath, doing any such thing, and its staff is forbidden to talk to the press on the grounds that legal action is still pending. Through spokesman David Barr, it would only say, “We believe the decision is incorrect on the law and on the facts and it will be reversed on appeal.” But an extraordinary cache of confidential memorandums, letters, and notes from inside the FDIC—uncovered during litigation and congressional hearings—shows precisely how the agency executed the plan. The documents reveal a tortured, labyrinthine, and almost surreal tale, one involving tree sitters, President Bill Clinton, White House chief of staff Leon Panetta, rock star Don Henley, a handful of prominent senators and congressmen, and the Secretary of the Interior, Bruce Babbitt. It is the story of a man who was harassed, demonized, and threatened with financial extinction by his own government in profoundly antidemocratic ways and who, with the entire might and muscle of the federal authorities ranged against him, fought back and won.
CHARLES HURWITZ IS A VERY, VERY PRIVATE MAN. To say that he avoids the spotlight is to grossly understate the matter. He loathes it. That is in part because most of the stories about him in the press have been sharply negative and in part because he is the sort of self-contained person who doesn’t really see why he should share his private thoughts with anyone else. Interviews with Hurwitz are extremely rare, and brutally brief. For a quarter of a century he has remained a mystery to the average reporter, a sort of informational black hole. And the less he has talked the easier it has become to portray him as a shadowy archvillain, as someone not quite human. I was therefore surprised when he agreed to be interviewed at length for this story. The occasion for such openness was Judge Hughes’s landmark award. But other events had helped put the wind at Hurwitz’s back. Hughes’s decision had been preceded by another federal court ruling that had absolved him of any wrongdoing or negligence at United Savings and a heavily documented congressional report detailing the FDIC’s debt-for-nature scam.
I meet Hurwitz in December in a small conference room at the headquarters of his Houston holding company, Maxxam. The office is distinguished by the absence of signs or markings of any kind. Like Hurwitz, the company craves anonymity. Hurwitz is 65 years old, six feet tall, bespectacled, and trim from tennis and regular gym workouts. He wears a dark, charcoal-stripe suit that would be considered conservative on Wall Street, and his personality seems to match it. I give him several opportunities to tell me how awful it was to be sued by the government for more than a billion dollars, how terrible and burdensome. But he won’t bite. If he feels the slightest amount of self-pity, he doesn’t show it.
“There are lots of kinds of lawsuits,” he explains eventually. “The worst of all is when the U.S. government is suing you, with its unlimited time and money. Worse still, they have a sister agency called the Office of Thrift Supervision that has its own judge and jury and can freeze your personal accounts. People can’t stand up to them. They can’t stand up financially or because of the pressure. Time doesn’t matter to the government. Money doesn’t mean anything.” I had expected someone with much rougher edges. Instead, Hurwitz is courtly, polite, and pleasant, so much so that I have to remind myself that this is the face that launched 10,000 demonstrations, a man so vilified that there is still a Web site called Jailhurwitz.com, where a reward of $50,000 is offered for information leading to his “arrest, conviction and jailing.”
To be sure, Hurwitz had earned his reputation. By the time he bought Pacific Lumber, in 1986, he had already established himself as one of the shrewdest takeover artists in the country and a man who seemed to create controversy wherever he went. He grew up in the fading oil boomtown of Kilgore, in East Texas, the son of a prosperous clothing store owner. He attended the University of Oklahoma and landed his first job as a broker for Bache Securities. While still in his twenties, he launched two successful mutual funds. The second—which he started in 1968 at the age of 28 with the backing of George Kozmetsky, a co-founder of Teledyne and later the dean of the business school at the University of Texas—was one of the first hedge funds and raised $54 million in its first offering.
He soon moved on. He caused his first controversy in the early seventies, when one of his companies was investigated by the Securities and Exchange Commission’s superintendent of insurance. The SEC accused him of filing false and misleading information related to a 1970 public offering. He signed a consent agreement, admitting no guilt. In 1973 he borrowed $12 million and bought a controlling interest in an undermanaged New York real estate company called Federated Development. He leveraged Federated into ownership of a much larger company, McCulloch Oil, a chain saw manufacturer and oil producer that also owned real estate in the West. He renamed it MCO Holdings, which later became Maxxam. A Maxxam subsidiary acquired Pacific Lumber. In 1988 Maxxam bought Kaiser Aluminum, the third-largest aluminum producer in the country.
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