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WHITE HOUSE CONTACTS WITH TREASURY/RTC OmCIALS ABOUT "WHnT:WATER"-REU1ID MATTERS-PART 5 Y 4. B 22/1:103-160 Hhite House Contracts Uith Treasury. . . HEARING BEFORE THE COMMITTEE ON FINANCE AND BANKING, URBAN AFFAIRS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS SECOND SESSION AUGUST 5, 1994 Printed for the use of the Committee on Banking, Finance and Urban Affairs Serial No. 103-160 FEB 2 1 1995 U.S. GOVERNMENT PRINTING OFFICE 81-979CC WASHINGTON : 1994 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-046476-5 WHITI HOUSE CONTACTS WITH TREASURY/RTC OmCIALS ABOUT "WHITEWATER"-RELATED MATTERS-PART 5 Y 4. B 22/1:103-160 Uhite House Contracts Uith Treasupg... HEARING BEFORE THE COMMITTEE ON FINANCE AND BANKING, URBAN AFFAIRS HOUSE OF REPRESENTATIVES ONE HUNDRED THIRD CONGRESS SECOND SESSION AUGUST 1994 5, Printed for the use ofthe Committee on Banking, Finance and Urban Affairs Serial No. lOS-160 FEB 2 1 )995 U.S. GOVERNMENT PRINTING OFFICE 81-979CC WASHINGTON : 1994 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments.CongressionalSalesOffice.Washington,DC 20402 ISBN 0-16-046476-5 HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS HENRY B. GONZALEZ, Texas, Chairman STEPHEN L. NEAL, North Carolina JAMES A. LEACH, Iowa JOHNJ. LaFALCE, New York BILL McCOLLUM, Florida BRUCE F. VENTO, Minnesota MARGE ROUKEMA, New Jersey CHARLES E. SCHUMER, New York DOUG BEREUTER, Nebraska BARNEY FRANK, Massachusette THOMAS J. RIDGE, Pennsylvania PAUL E. KANJORSKI, Pennsylvania TOBY ROTH, Wisconsin JOSEPH P. KENNEDY II, Massachusetts ALFRED A. (AL) McCANDLESS, California FLOYD H. FLAKE, New York RICHARD H. BAKER, Louisiana KWEISI MFUME, Maryland JIM NUSSLE, Iowa MAXINE WATERS, California CRAIG THOMAS, Wyoming LARRY LaROCCO. Idaho SAM JOHNSON, Texas BILL ORTON, Utah DEBORAH PRYCE, Ohio JIM BACCHUS, Florida JOHN LINDER, Georgia HERBERT C. KLEIN, New Jersey JOE KNOLLENBERG, Michigan CAROLYN B. MALONEY, New York RICK LAZIO, New York PETER DEUTSCH, Florida ROD GRAMS, Minnesota LUIS V. GUTIERREZ, Illinois SPENCER BACHUS, Alabama BOBBY L. RUSH, Ilhnois MIKE HUFFINGTON, California LUCILLE ROYBAI^ALLARD, California MICHAEL CASTLE, Delaware THOMAS M. BARRETT, Wisconsin PETER KING, New York ELIZABETH FURSE, Oregon NYDIA M. VELAZQUEZ, New York BERNARD SANDERS, Vermont ALBERT R. WYNN, Maryland CLEO FIELDS, Louisiana MELVIN WATT, North Carolina MAURICE HINCHEY, New York CALVIN M. DOOLEY, California RON KLINK, Pennsylvania , ERIC FINGERHUT. Ohio (II) CONTENTS Page Hearingheldon: August 5, 1994 1 Appendix: August 5, 1994 93 WITNESSES Friday, August 5, 1994 Breslaw, April A., Counsel, Professional Liability Section, Resolution Trust Corporation 8 Katsanos, Stephen, ResolutionTrust Corporation 10 Kulka, Ellen, General Counsel, ResolutionTrust Corporation 5 Roelle, William, Deputy to the Director, Federal Deposit Insurance Corpora- tion, andFormerSeniorVice President, Resolution Trust Corporation 8 Ryan, John E., ActingChiefExecutive Officer, Resolution Trust Corporation .. 3 APPENDIX Prepared statements: Gonzalez, Hon. Henry B 94 Breslaw, AprilA 107 Kulka, Ellen 101 Ryan,JohnE 95 Additional Material Submitted for the Record Gonzalez, Hon. Henry B.: Letters ofinvitation to testify 119 Letter dated August 3, 1994, from Butler & Binion, lawyers for Ms. Lewis, declininginvitation totestify at thehearing 127 Letter dated August 15, 1994, from April Breslaw clarifying redacted notes ofMarch 25 meetingbetween Ms. Breslaw, RTC General Counsel KuUta, andAssistant General CounselHindes 129 Letter dated August 24, 1994, from Ms. Kulka amplifying her testimony ofAugust 5, 1994 132 Closing statement 133 Correspondence between Chairman Gonzalez and Rep. James A. Leach regardingthe Whitewaterhearings 136 'Tool forScandal,"Harper's magazine, October 1994 192 BankingCommittee StaffMemo: "Unprecedented RTC Resources Devoted to Madison Civil Case" 201 Letter dated September 7, 1994 from Chairman Gonzalez to Democratic Colleagues 204 Letter dated August 24, 1994 from Glion Curtis, former Acting General Counsel oftheRTC, to Chairman Gonzalez 212 Leach, Hon. JamesA.: LetterdatedAugust4, 1994 fromHon. Bill Orton 214 LetterdatedAugust4, 1994, to Hon. Bill Orton 216 Letter dated February 3, 1994, to Mr. Altman re RTC investigation ofMadison Savings and Loan failure 218 Closingstatement 221 Pryce, Hon. Deborah, copyofE-Mail memo toJohnRyan fromApril Breslaw . 227 (III) WHITE HOUSE CONTACTS WITH TREASURY/RTC OFFFICIALS ABOUT "WHITEWATER"-RELATED MATTERS—PART 5 FRroAY, AUGUST 5, 1994 House of Representatives, Committee on Banking, Finance and Urban Affairs, Washington, DC. The committee met, pursuant to notice, at 9:32 a.m., in room 2128, Rayburn House Oflfice Building, Hon. Henry B. Gonzalez [chairman ofthe committee] presiding. Present: Chairman Gonzalez, Representatives Neal, LaFalce, Vento, Frank, Kanjorski, Kennedy, Waters, LaRocco, Orton, Bac- chus of Florida, Klein, Maloney, Deutsch, Gutierrez, Roybal-Allard, Barrett, Furse, Wynn, Fields, Watt, Hinchey, Fingerhut, Leach, McCollum, Roukema, Bereuter, Ridge, Roth, McCandless, Nussle, Thomas, Johnson, Pryce, Linder, Knollenberg, Lazio, Grams, Bachus ofAlabama, Huffington, Castle, and King. The Chairman. The committee will please come to order. Good morning. The panel and beloved brethren, as they used to say in my church, the hearing today is the fifth hearing on the completed phase of the independent counsel's investigation into the so-called Whitewater affair. Our witnesses today are from the Resolution Trust Corporation. And I want to thank them at the very outset for their cooperation, not only in immediately replying and acceding to our request to ap- pear, but their invaluable help and assistance to the staff in the preparatory work. They will address what they know of the contacts between the Treasury, the White House, and the RTC regarding the so-called Whitewater affair, whatever phase that is applica- ble to the call ofour House-passed resolution. A major claim has been, the Madison Guaranty Savings and Loan got some kind of special treatment; namely, that the White House tried to slow down or somehow thwart civil and criminal investigations, and the fact is that nothing could be further from the truth. The RTC devoted more energy and resources to investigating Madison than any other institution. Banks with billion dollar asset losses were not scrutinized as much as Madison. The multiple investigation and this committee's hearings have shown one Repub- lican charge after another to be baseless, exaggerated, or distorted. Witness after witness show that none of the Treasury-White House-RTC contacts were illegal, to boot, and add other investiga- (1) tions, including the special counsel, who has a grand jury as an ad- junct help. None ofthese contacts were unethical and this is according again to three other investi—gations, including witness after witness, document af—ter document and our staffhas reviewed thousands ofdoc- uments that show nothing was done wrong bv the administration. Was there regulatory misconduct? Well, if the fervent zeal to in- vestigate Madison is misconduct. Was there an effort to thwart any investigation? Today's witnesses will address that question. And with that, I will recognize Mr. Leach. Mr. Leach. Mr, Chairman, the minority has no opening statement, but as previously agreed, will be allowed a closing statement. We welcome the witnesses before us, and I am pleased to meet some ofyou whom I have never met before. Mr. Chairman, if I could request unanimous consent to place in the record some correspondence between myself and the Treasury on the recusal issue of Mr. Altman, as well as place in the record a letter that I have recently written to a colleague in the House. [The correspondence referred to can be found in the appendix.] The Chairman. Now, I want to say to the witnesses that today we will be, of course, conducting the hearing under rule X of our rules of the House and committee and will therefore be swearing vou in as we recognize you, which has been the practice in these hearings. Now, I want to point out, as I have previously, that none of the witnesses are accused of any wrongdoing nor are they under the shadow ofany inference ofwrongdoing or misdeed ofany kind. And again and again, I must point out that this committee is not ajudi- cial body. It is not a court. And it is not a prosecutorial body. That has already been referred to special counsel, and now I think he has been designated special prosecutor. And I must keep saying that because apparently even those per- sons that are supposed to be reporting from a knowledgeable and experienced standpoint the proceedings of this body have failed to grasp this very significant and fundamental point. Therefore, no one should infer any negative idea to the fact that the witnesses are being asked to take an oath under other procedures. It is a practice that has been adopted and has been incorporated, as I say and repeat, in rule X. So unless there is a witness that has some kind of time problem or constraint, we will try to handle the requests as best as we can, and then in light of the consensus, we will try to accommodate. Otherwise, I will recognize you from my left to the right and ask Mr. Hindes to be the first witness and ask you to stand and raise your right hand. [Witness sworn.] The Chairman. The—gentleman may proceed. — The staff tells me and I wasn't aware of this that the witnesses have expressed a desire that Mr. Ryan be recognized first, and I can see the reason for that. I was just proceeding under the basis that we have done so often before that it is automatic reflex. So pardon me, Mr. Ryan, but I think that desire is very fitting and proper. So we will recognize you first and ask you to stand. [Witness sworn.] TESTIMONY OF JOHNE. RYAN, ACTING CHIEF EXECUTIVE OFFICER, RESOLUTION TRUST CORPORATION Mr. Ryan. Mr. Chairman, members of the committee, my name is Jack Ryan. I am the Deputy and Acting CEO of the RTC. I be- came Deputy CEO on January 4 of this year and assumed the role ofActing CEO on March 30, 1994. I am a career regulator with over 30 years' experience as a senior regulatory official with the Federal Reserve Board and, more recently, with the Office of Thrift Supervision where I have served as the Director ofthe southeast region ofthe Office ofThrift Super- vision since October 1989. Over the course of my career, I have helped deal with and man- age many of the financial crises that have occurred in the United States during the past 20 years, including Continental Illinois, Penn Square, the foreign debt problem, and the savings and loan crisis, to name a few. CEO Last December, I agreed to serve temporarily as Deputy of the RTC until a permanent CEO could be nominated and con- firmed. When I agreed to the temporary assignment, it was my understanding that the process of selecting a permanent CEO was well under way, and I anticipated my tenure would be limited to a matter of a few weeks. Obviously, that expectation turned out to be incorrect and myjob has now expanded to Acting CEO. As ofthis moment, I have no idea what the current status of the selection of a permanent CEO is, nor do I know how much longer I will have this responsibility. As I have repeatedly told the RTC staff, I will continue to discharge my responsibilities, including those related to Madison Guaranty, as though I was the permanent CEO, and to the best ofmy ability. The RTC is fully cooperating with this committee in the conduct of these hearings. The RTC has provided the information and data requested by this committee and has made staff available for testimony. The RTC is also cooperating fully with Special Counsel Fiske, the Senate Banking Committee, the Treasury Office of the Inspector General, the RTC Office of the Inspector General, the General Accounting Office, and the Office of Government Ethics in their investigations ofvarious aspects ofthis matter. During my interview before counsel for the Senate committee and before Special Counsel Fiske, I have been asked a number of questions most of which fell into the following categories: One, how I came to be selected for this job; two, my authority as Deputy CEO, which was the position I held when most of the events that are the subject of this hearing occurred; three, my relationship with Mr. Altman and the administration; four, my knowledge of and/or participation in the TreasuryAVhite House contacts; five, whether I was ever instructed or pressured by Treasury or the White House to influence the investigation or the outcome of the investigation into Madison Guaranty Savings and Loan; and six, whether I have done anything to impede or change the results of the RTC's investigation; for example, did I tell the RTC staff I pre- ferred a finding that Whitewater did not cause a loss to Madison. I will now cover for the record a summary of my responses to these questions. I received a phone call in December 1993 while I was in Atlanta with the OTS from Frank Newman, Under Secretary of the Treas- ury, whom I had known professionally when he was with Bank of America and I was with the Federal Reserve. Mr. Newman's call came not long after the nomination of Stanley Tate as CEO had been withdrawn, and he asked if I would consider a temporary assignment at the RTC. I traveled to Washington for two interviews, one with Mr. Alt- man and one with Secretary Bentsen. These interviews were the first time I had ever met eitner Mr. Altman or Mr. Bentsen. I don't believe the subject of Madison Guaranty came up during these interviews as most of the discussions dealt with morale problems at the RTC and what could be done about them. At those interviews, I agreed to serve as Deputy CEO of the RTC. The position of Deputy CEO is a statutory one enacted in the RTC Completion Act. There was no Deputy CEO before me and, as a result, the existing RTC organizational structure and delegations of authority did not provide for one when I arrived. In fact, some of the senior officials of the corporation, by law, reported directly to the CEO. The lack of clear authority in the RTC's corporate structure, together with the temporary nature of my appointment, and the fact that the Deputy Secretary of the Treasury remained CEO created a very challenging environment in which to assume operating responsibility. Obviously, much of my time in the early days was spent trying to gain an understanding and some control over an organization that is surprisingly decentralized with functional units operating independently of each other. The precise decisionmaking responsibility is not only difficult to explain under these circumstances, but my observation is that it was often not clear to those working at the RTC as well. During my tenure as Deputy CEO, I reported to Mr. Alt- man who was the Interim CEO. It should be ndoitreedctltyhat Mr. Alt- man essentially withdrew from active RTC management following the February 24 Senate —Banking Committee's RTC's Semiannual Oversight Board meeting Board hearing, some 7 weeks after my arrival. During the period preceding the hearing, regular weekly meetings were scheduled to discuss RTC matters, but due to Mr. Altmans busy schedule, many of these meetings actually never took place. The subject of Madison Guaranty came up three or four times during these meetings. The discussions were procedural, and I am quite certain that the substance of the allegations was not discussed. Let me note that Mr. Altman's instructions to me and the other RTC staff always was to deal with Madison Guaranty the same as the RTC would deal with any other similar organization. Regarding the meetings and/or contacts between Treasury and the White House, I first learned of the February 2 White House meeting in Mr. Altman's office during a question and answer session being held to prepare for the February 24 hearing before the Senate Banking Committee. I had no prior knowledge ofthat meeting and was unaware ofany other contacts until I read about them in the press.