This is long but very interesting.

Akin Gump initiated a lawsuit against author Christopher
Whalen, blaming him for the Hank family's problems with
the Federal Reserve Board.

Later, after an entrapment scheme was uncovered by
the plaintiffs, Akin Gump withdrew from the case
and it was taken over by Ricardo Cedillo, who wrote
that nasty letter to El Andar magazine.

This is the tip of an iceberg....

Texas Observer Story:

http://www.texasobserver.org/Archives/000317_nafta_bank.htm

Carlos Hank's NAFTA Bank
by Louis Dubose

It's owned by Incus?

-- That's correct?

Who holds the majority of the stock?

-- Incus.

Who owns Incus? -- Carlos Hank Rhon

Laredo: On the third floor of Laredo's palatial new court house, in a
room appointed with rose-colored faux marble, extravagant drapery,
and dark hardwood bar, bench, and tables, a plaintiff was telling a
cattle rustling tale. Though it was a tale of modern cattle
rustling -- involving show cattle, high-dollar auctions, the
implantation of fertilized eggs, and a business partner doing the
rustling -- it was a case you would expect to be tried in one of the
old architectural monuments Laura Bush is trying to preserve in
rural Texas. And if the claim that "with embryo transfer there is
no limit as to how many calves you can get from one cow" seemed as
over the top as Laredo's four-story monument to justice and county
government, the plaintiff was earnest, eloquent, and compelling.
Judge Elma Salinas Ender ruled on a substantial default judgment
that provided $75,000 and attorneys' fees for the plaintiff and
enjoined the defendant from selling any more cows owned in
partnership. The quick resolution of the case provided one of those
sweet moments in a courtroom, when equity is efficiently delivered
and justice is served -- even if the defendant was nowhere to be
seen.

It also provided a stark contrast to the case that would follow:

Laredo National Bank's claim that a New York investment banker had
queered the deal when LNB set out to acquire Mercantile National
Bank of Brownsville. Neither of the principals was present -- only
the attorneys. The defense counsel told the judge the plaintiff's
counsel had been "childish and rude." The plaintiff's counsel --
who had walked out of a deposition in San Antonio after
complaining "this is bullshit" -- told the judge the defense
counsel was an "obstructionist." The judge was being asked to
schedule the deposition in her courtroom, where she could mediate
fights between lawyers. No attorney had yet mentioned the facts and
the law. And Judge Salinas, no doubt looking forward to her next
case (a sullen defendant in handcuffs and an orange jumpsuit,
waiting to be escorted into the courtroom by a deputy sheriff), was
only being asked to settle a question of jurisdiction.

This particular episode of Laredo National Bancshares vs. Richard
Christopher Whalen -- sandwiched between an animal husbandry tort and
a pre-trial hearing of a felony prosecution -- was all pre-trial
posturing. It is also the smaller of two oddly related lawsuits.
Part of LNB's complaint against Christopher Whalen alleges that he
provided the Federal Reserve Board with information damaging to the
bank. The Fed's legal staff, in a separate legal procedure, has
taken aim at the bank's owners. And Whalen is being pressed by the
bank's attorneys to tell them who he talked to at the Fed, and when
he talked.

It is evident that the real action is in Washington, where the
Federal Reserve Board is attempting to take Laredo National Bank
from its owner, Mexican industrialist and investor Carlos Hank
Rhon. Attorneys in the Fed's enforcement division have built a
detailed factual case against Hank Rhon, alleging that he played an
elaborate shell game with bank shares and lied about who owns
Laredo National Bank. If LNB wins in Laredo, the bank's lawyers
might wring a few million dollars out of Christopher Whalen. If the
Fed wins in Washington, it can collect $41 million from Hank Rhon,
order him to divest himself of his 71 percent ownership in LNB, and
bar him from bank ownership in the U.S. "This is a really big
deal," said one former Fed employee in Washington.

It is a big deal that involves the Washington offices of two powerful
Texas law firms: Fulbright & Jaworski, which bears the name of one-
time Watergate Special Prosecutor Leon Jaworski; and Akin Gump,
best known for one of its senior partners, former Democratic Party
Chair Bob Strauss of Dallas. There is even a New York public
relations firm hired to do the talking for the Hanks, the bank, and
the attorneys.

It's a big deal because it involves "los Hank," one of Mexico's
richest and politically powerful families. The Federal Reserve
Board is asking, "who owns the bank?" It is also quietly
asking, "who are the Hanks?" The Fed's case is straightforward and
built on charges of misrepresentation about the ownership of the
Laredo bank. Yet its investigation involves the D.E.A., the
National Drug Intelligence Center, and local police department drug
task forces -- agencies rarely involved in chartering federal
banks.

Who Owns the Bank?

Through an offshore holding company, which owns Laredo National
Bancshares, which in turn owns Laredo National Bank, Hank
Rhon "controls" 71 percent of the border bank. Bank ownership
structure can be complex, so there is nothing out of the ordinary
about shares moving through Switzerland, the U.S., Mexico, and the
British Virgin Islands. It's a global economy, and if you think a
friendly local holding company in North Carolina owns your hometown
bank in Texas, you're wrong.

But the Bank Holding Company Act requires banks to provide a full
accounting of who owns controlling interest, and the Fed retains
the right to approve or reject buyers. For decades, Laredo National
Bank had been locally owned. As a large border bank it appealed to
wealthy Mexicans in the habit of keeping dollar-denominated
accounts. It has branch offices as far away as Houston and is the
third largest independently owned bank Texas. Until 1990 LNB had
been owned by the Alexanders and Mandels of Laredo. When Gary
Jacobs married into the Mandel family, he went to work at his
father-in-law's bank and ultimately became president -- a position
he still holds today.

In 1990 major shareholders were bought out by what the Fed describes
as "nominees" for clients from Mexico and several European
countries. In 1991, Hank Rhon advised the Federal Reserve that he
was buying 74,000 shares of Laredo National Bancshares Holding
Company stock for $7.4 million. What Federal Reserve board
investigators have learned since, they allege in their "notice of
enforcement," is that Rhon paid an extra $1.2 million for the stock
and threw in a luxury car to sweeten the deal for the seller.

It was the beginning of a bewildering series of moves that seem to
make it impossible to determine who owns Laredo National Bank. Hank
Rhon, the Fed's lawyers also allege, acquired another 93,250 shares
of LNB stock, which he failed to disclose at the time of the
transactions. He also used what in Mexico are known as
prestanombres (borrowed names), acquiring LNB shares in the name of
his daughter Graciela Hank González; his accountant, Agustín López
Morales; and Arturo Mart?nez de la Mora, who managed other Hank
Rhon businesses. In what appears to be a bit of wry humor in their
complaint, Fed attorneys observe: "In arranging to have the shares
purchased in the name of López Morales, Hank Rhon had forgotten
that López Morales was a director of Kline, and therefore was also
barred by the commitment from acquiring additional shares, even if
López Morales had held them on his own behalf." Kline was a Hank
Rhon holding company expressly prohibited, the Fed's lawyers
observe, from buying additional stock at the time.

Money and shares, according to the Fed, moved in circles and those
circles moved. Follow, for example, $10 million, that seems to move
from Laredo to New York to Switzerland and back to Laredo, all
according to allegations in the Fed complaint, at the direction of
Carlos Hank Rhon (who either was or wasn't bringing Mexico City
newspaper publisher Gabriel Alarcón Velázquez into the LNB
ownership scheme):

Alarcón agreed to participate in the acquisition of LNB's stock at
or shortly after the time of Hank Rhon's invitation. To fund his
purchase, Alarcón requested that Laredo National Bank grant him a
$10 million loan. Laredo National Bank's management agreed to make
the loan, and it was funded on November 19, 1993. Hank Rhon told
Alarcón to send the funds to Citibank, N.A., where upon Hank Rhon's
instructions, the funds were placed in the escrow account
established to hold in consideration for the shares that Incus had
contracted to purchase from the Swiss shareholders. At the same
time, Hank Rhon instructed Citibank to release back to him $10
million worth of the peso-denominated mutual fund shares that he
had represented to the Board would be the source of funds for the
acquisition.

In 1994, David Peñaloza Sandovál, C.E.O. of one of the largest
construction companies in Mexico, purchased a $21 million interest
in LNB and failed to report it for two years, according to court
documents filed by Federal Reserve lawyers. Two years after the
fact, Hank Rhon, Peñaloza, and a New York law firm drafted
contracts documenting the sale. Hank Rhon and Peñaloza even
established an escrow account, "which purported to hold the
$21,161,845 in escrow, with Hank Rhon as the escrow agent."

"In fact, the escrow account was a sham," the Federal Reserve
complaint continues, "designed to make it appear that Peñaloza's
acquisition of an equity interest in Incus was pending the Board's
approval, rather than completed, as it actually had been in 1993
and 1994.... Hank Rhon treated the funds in this 'escrow' account
as his own, transferring balances to and from his personal accounts
at Laredo National Bank and at Interacciones" [another Hank Rhon
company].

Loans made by LNB also tended to move in circles. The Fed document
describes a $3.5 million loan made to Carlos Oilmon Meraz, Hank
Rhon's brother-in-law. "Approximately $3.5 million of this loan
were transferred to Palenque, Ltd., a company of which Hank Rhon
was the beneficial owner." Two years later, in
1993, Oilmon borrowed another $1.5 million. In 1994 the loan balance
was transferred to Oilmex, a corporation owned by Oilmon. "In 1995,
that loan
went into default, and Laredo National Bank wrote off at least $2.8
million...," according to the Fed's court filings.

Listed in the Fed's long and detailed complaint are numerous
incidents in which millions of dollars moved in mysterious ways,
many alleged to be in violation of federal banking law. It was all
in the family. If the extended Hank family of business associates,
brothers-in-law, and close friends worried lawyers at the Fed's
enforcement division, the alleged unauthorized participation of
Hank Rhon's father, Carlos Hank González, could present a problem
when Hank Rhon and his legal team stand before the Federal Reserve
Board of Governors -- a.k.a. Alan Greenspan and the Six Dwarves.
Carlos Hank González, according to the Fed complaint, at one time
bought $20 million of LNB stock, without reporting it to federal
regulators.

Who are the Hanks?

Hank patriarch Carlos Hank González was born into fairly modest
circumstances. He owes his fortune, which Forbes estimates at $1.3
billion, to the Institutional Revolutionary Party that has ruled
Mexico for seven decades. He was a schoolteacher and party
operative who went on to serve as a federal congressman from the
state of Mexico, mayor of Mexico City, mayor of Toluca, secretary
of tourism, secretary of agriculture, and director of Mexico's
federal commodities distribution program. (Hank González' c.v. is
not unusual in a country with a constitutional ban on holding any
elected office twice. Because of term limits, politicians move from
one office to another.)

It has been observed that Hank González was never president of Mexico
only because his father was born in Germany. The Mexican
constitution requires the president to be the child of Mexican-born
citizens of Mexico.

Manuel Buendía, a nationally syndicated Mexico City columnist who
was assassinated in the eighties, once wrote a wry humorous column
about Hank González' frustration with the constitutional provision
that denied him his six years in Los Pinos -- Mexico's White House.

A Mexican congressman, Buendía wrote, convened a panel of scholars
and ordered them to look for proof that the word "Hank" had its
origin in the language of the Mazahua, an indigenous Amerindian
group from the region around the state of Mexico. When the report
was delivered to Toluca (the state Hank González represented in
Congress) the eager congressman opened the envelope and read that the
word Hank was indeed Mazahua. In that language it meant: "He who
came from Germany."

It has also been observed that "El Professor" González amassed a
billion-dollar fortune while working as an elected or appointed
government official. According to the Mexican newsweekly Proceso,
Hank González made much of his fortune investing in companies who
did business with the government. González and his son, Hank Rhon,
were also two of the power brokers behind disgraced Mexican
president Carlos Salinas de Gortari.

None of this would disqualify los Hank from owning a "beneficial
interest" in a U.S. bank. But if the Hanks were found to be engaged
in illegal activities, there could be a problem with the "character
test" in the law governing bank ownership. LNB attorneys have asked
Christopher Whalen about conversations he has had with federal drug
enforcement agencies concerning Laredo National Bank. And the
Federal Reserve's legal staff seems to be pursuing reports that
first appeared in the Mexico City daily El Financiero and later in
the Washington Post. Both papers reported on U.S. drug-enforcement
investigations linking the Hank Clan to alleged drug dealing and
money laundering.

Dolia Estévez is the Washington correspondent for El Financiero and
a particular favorite of American sources leaking information they
decide needs to be reported in the Mexican press. Her stories often
travel a circular route similar to the one the Fed alleges Hank's
money follows -- from the U.S. to Mexico and back to the U.S. In
1995, she reported on a Senate Foreign Relations Committee internal
memo that accused Hank Rhon of laundering money for Mexican
narcotraficantes. The document Estévez cites makes the same claim
about Hank González, describing him as "a principal intermediary
between narcotraficantes and the political system."

Estévez cited the date of the memo (August 3, 1995) as well as the
pages that referred to the Hanks. And in fairness to the Hanks, she
reminded her readers that the committee is chaired by Senator Jesse
Helms, widely known to have a strong anti-Mexico disposition. Hank
González, she wrote, was a close associate of President Salinas and
leader of the Dinosaurios -- the retrograde defenders of position,
power, and the old politics of the P.R.I. Some of the huge fortune
amassed by former president Carlos Salinas de Gortari, now in self-
imposed exile in Ireland, was deposited at Laredo National Bank,
according to the Foreign Relations Committee report Estévez cited.

Last June Estévez reported that the Hanks were the target of a drug
task force investigation documented in a report leaked to her from
a source at the National Drug Intelligence Center. The story was
quickly picked up by the Washington Post, and although no one at
the intelligence center will discuss the report, its existence was
confirmed when the D.E.A. investigation extended to Costa Rica.

Kathleen Daly at the U.S. Embassy in San José told the press the
report was "extremely confidential" and could not be released. "As
a final point we were informed that the investigation of the Hank
González organization in the United States is ongoing and therefore
it is not appropriate to comment on any possible accusations of
criminal activity," she said in an interview quoted in Proceso.

In November, Proceso published the full text of a confidential U.S.
Customs Service Report on Operation White Tiger, which referred to
the white Siberian tiger customs officials confiscated from Jorge
Hank Rhon in 1991, when he tried to smuggle the animal into Mexico
through San Ysidro, California. Carlos Hank González' younger son
is the enfant terrible of the Hank family. Jorge Hank owns the Agua
Caliente horse track in Tijuana and several off-track betting
parlors in Mexico. "My only vice is animals," he told Proceso,
referring to the horse track, the tiger, and a chimp and gorilla he
was caught illegally shipping into Mexico -- as well as a separate
incident at the Mexico City airport where customs agents discovered
his suitcase was packed full of skins of rare, protected animals.

Jorge Hank also owns the Tijuana daily, El Heraldo. Since 1988, he
has been the indirect subject of a standing ad in the Tijuana
weekly Zeta. Paid for by Zeta publisher Jesús Blancornelas, the ad
has nothing to do with the fights over circulation and ad revenue
that normally animate fights between rival publications. It demands
that the government prosecute the "intellectual author" of the
assassination of Héctor "el Gato" Félix, the Zeta co-editor and
columnist murdered by Antonio Vera Palestina and Victoriano Medina.

At the time of the murder, Vera Palestina, the former bodyguard of
Carlos Hank González, was Jorge Hank Rhon's bodyguard. Medina
worked as a security agent at Jorge Hank Rhon's Tijuana racetrack.
Both men are serving prison terms for the murder. (Blancornelas
himself was shot and critically wounded in a 1997 assassination
attempt in which his bodyguard was killed while shooting at the
assailants.)

The customs report reprinted in Proceso also focuses on
Transportacíon Marítima Mexicana, a shipping company controlled by
Carlos Hank; the Tijuana race track; and Laredo National Bank. It
also provides details about alleged drug dealing and money
laundering by the Hank enterprises. None of this has anything to do
with federal banking law, but Federal Reserve lawyers would have to
be blind to miss it. "The enforcement and supe supervision] people
at the Fed don't do criminal investigations," a former Fed employee
said. "They license and supervise banks, it's all financial. But
they do pay attention to this sort of stuff."

It appears that they are paying attention. A Fed legal staff
memorandum subpoenaed in the Washington proceeding cites a
September 11, 1996, news story in which Reuters reported
that "Mexican officials have discovered additional U.S. bank
accounts belonging to former President Carlos Salinas' brother Raúl
Salinas that may have been used to launder illegal drug money.

Reforma, a Mexico-City daily, reported that one of the accounts
being investigated by Mexican and U.S. officials is at the LNB],
which is located just over the border in Texas and owned by Mexican
financier Carlos Hank Rhon.... The government documents show
Salinas may have used the U.S. accounts to transfer money to and
from large secret bank accounts in Switzerland that were discovered
late last year."

Subpoenas issued by the Federal Reserve staff also request
information dating from 1991 for eighteen companies, including
Incus, Kline, and Grupo Financiero Interacciones (a Hank family
holding company). The Hanks began acquiring LNB shares in 1991.
Also subpoenaed are records of transactions believed to be related
to money laundering involving Mr. Hank Rhon, Raúl Salinas, and Juan
Gómez. Juan Gómez is the name on a Mexican passport Swiss
authorities seized from a safety deposit box in a bank in Zurich. On
the passport was a photo of Raúl Salinas, the brother of former
Mexican President Carlos Salinas. Swiss authorities seized $90
million from Raúl Salinas' accounts. Raúl Salinas is in prison in
Mexico.

"After taking into account the size of Hank Rhon's financial
resources, his good faith, the gravity of the violations, the
history of previous violations, and such other matters as justice
may require, the Board of Governors hereby assesses a civil money
penalty of $10,000,000 against Hank Rhon...." reads the complaint.

In similar language, the Fed's legal staff recommends $31,100,000
in fines for Incus, the Hank's holding company in the British
Virgin Islands.

"We intend to have this matter taken off the table," said Richard
Bickler, the Fulbright & Jaworski attorney representing Hank Rhon.
In an abbreviated telephone interview, Bickler said the Fed's
charges have no merit. (He has returned no calls since an initial
conversation and is speaking through Robert Siegfried of New York.)
Should they lose the first round, Hank Rhon and Incus can appeal
before the Federal Reserve Board, and then in the Federal Court of
Appeals in Washington, D.C.

In Court in laredo?

What does all this have to do with Christopher Whalen? LNB alleges
that Whalen cost the bank its opportunity to purchase Mercantile in
Brownsville, which was ultimately acquired by Norwest Bank. Whalen,
who once published a business newsletter called The Mexico Report,
wrote about the Hanks, and was on one occasion called before a
House Banking subcommittee, where he testified about their business
interests. The bank's lawyers claim he later provided the Federal
Reserve Board with information that damaged the bank -- and that he
did it for his own personal gain.

Yet one document in possession of the Federal Reserve's Washington
legal staff and Hank Rhon's Washington lawyers suggests that
Citibank might have pointed the Fed toward Laredo. The Fed's
summary describes a meeting the Fed's staff held with Citibank --
at the request of Citibank. "At the meeting, the Citibank
representative provided information concerning possible violations
of banking laws and misrepresentations to the Board that had come
to the attention of Citibank's attorneys."

Citibank -- for years the only U.S. bank with a branch office in
Mexico -- has had problems of its own. It was through "Citi" that
Raúl Salinas moved much of his money out of Mexico and on to
Switzerland. The New York Times and the Washington Post have
reported on Salinas' dealings with Amy Elliott, his personal banker
in Citibank's New York office. It has also been reported in the
Mexican and U.S. press that Carlos Hank Rhon provided Raúl Salinas
suggestions on how to get his money out of Mexico.

LNB's suit against Whalen is still focused on jurisdiction -- whether
the case can be tried in state district court in Texas. In a court
appearance on February 23, Laredo National Bank's attorney Richard
Cedillo argued the merits of a long-arm provision of Texas law,
which holds out-of-state defendants responsible for actions
committed in another state if the effects of the action are felt in
Texas. He also claimed that Whalen's ownership of a Texas
corporation, Legal Research International, makes him subject to
Texas tort law. Whalen's local counsel, John Convery, argued that
Whalen never owned a Texas business. He had once considered a joint
business venture with a Houston resident. When the company was
incorporated, Houston businessman Billy Flanigan listed Whalen as
officer -- admittedly (in Flanigan's deposition) without Whalen's
consent. Flanigan, the elderly co-defendant from Houston, seemed
bewildered and angry to have been dragged into court to provide
Laredo National Bank with Texas jurisdiction.

His February 7 deposition is antagonistic, hostile, and filled with
monosyllabic responses. One non-responsive response Flanigan offered
summed up his frustration. "No," he said to a question about
contacts with government officials. He added, "I believe that I
have been wrongfully named. My company has been wrongfully named.
And I am not a party to this case." He is. Unless the judge
dismisses him. Or Laredo National Bank drops him, which would
eliminate one of their jurisdictional claims to keep the case in a
Texas court.

Christopher Whalen's deposition was ultimately held in Judge
Salinas' courtroom. It's more revealing than Flanigan's, in part
because Whalen was too forthright. And it returns to the backstory
of the Fed's investigation of LNB: drugs and federal drug
enforcement officials. In 1998, in a statement he now regrets, Whalen
advised a Florida investor shopping for a bank that LNB's request
to buy Mercantile National bank would not be approved by the
Fed. "In terms of your negotiating strategy," Whalen wrote in a
letter to the potential buyer, "you should be mindful of the fact
that the Fed, through regulatory inaction, did not permit LNB to
purchase Mercantile Bank in Brownsville (through my efforts and
those of others)..." Whalen claims his comment "through my efforts"
was hyperbole. "It was overblown and inflated. It was hyperbole on
my part." Laredo National Bank isn't buying Whalen's hyperbole
argument.

The "others" were federal drug enforcement agents, whose names Whalen
tried to avoid revealing until Judge Salinas ordered him to provide
them. In his deposition, Whalen states that because he knew Mexican
finance, he was contacted by D.E.A. agents inquiring about Carlos
Hank Rhon. (The officers named, according to D.E.A. agent Vincent
Rice in San Diego, were local police officers assigned to D.E.A.
task forces.) Whalen passed the contacts on to the Fed when their
investigators called on him. Throughout his deposition, Whalen
repeated that it was the Hank family and not Laredo National Bank
that investigators from the D.E.A. and the Fed wanted talk
about. "I indicated to him that I had been contacted in the past by
a variety of law enforcement organizations, primarily the D.E.A.,
who had interest in or ongoing investigations of connections
between the Hank family and drug trafficking and money laundering,"
Whalen said. Whalen also said he once asked former U.S. ambassador
to Mexico Jim Jones about the Hanks and was told "I really don't
think there's anything there." (An odd fact revealed in questions
about the Fed is that Whalen's father is a longtime friend of Fed
Chairman Alan Greenspan.)

Their bank's attorney also pressed Whalen for information about
Citibank. Does he have any relationship with Citibank? Does he know
a Citibank employee named Amy Elliott? "Any relationship with
Philip Jordan? Do you know who Phil Jordan is?" Whalen answered no
to each question, which suggests that he might not be the best
source on current affairs in Mexico. As has been widely reported in
the U.S. press, Amy Elliott is the bank officer in New York who
handled the personal affairs of Raúl Salinas. Philip Jordan is a
former D.E.A. agent living in El Paso, who has been openly critical
of the agency's failure to aggressively pursue big players in
Mexico and is frequently quoted in drug-related stories.

LNB's lawyers are also looking for information from federal drug
agents. Richard Cedillo subpoenaed fourteen separate items from
federal drug enforcement agencies. The Assistant U.S. Attorney in
Laredo responded by promptly moving the subpoena to federal court
in Laredo: "Laredo National Bank had a long laundry list, a long
list," Hector Ramírez said. "And the agencies said we can agree to
release documents listed in items one and two. And we released the
documents in items one and two, and that's where we are." Ramírez
said the U.S. attorney's office provided Laredo National Bank with
some information from the National Drug Intelligence Center and
implied that further requests for drug agency information will have
to be litigated.

Whalen was also asked about his contacts with the press: Knute Royce
of Newsday, Michael Allen of the Wall Street Journal, and finally
Dolia Estévez of Financiero, who has written extensively on the
Hanks. Estevéz is the only Mexican reporter writing extensive
stories about the Hank's fight with the Federal Reserve. She has
even briefly covered the Laredo Bancshares suit against Whalen.

Attempts to speak to Gary Jacobs in Laredo, Richard Cedillo in San
Antonio, and attorneys representing Hank Rhon and Incus in
Washington, D.C., resulted in a response from a public relations
firm in New York. Responding to calls and faxed questions sent to
Akin Gump and Fulbright & Jaworski's Washington offices, and to
Richard Cedillo's office in San Antonio, bank spokesperson Robert
Siegfried responded for all three lawyers, by telephone and email:

Your questions appear to confuse two separate actions -- Laredo
National Bancshares litigation against Christopher Whalen and the
Federal Reserve's inquiry conducted by its staff with respect to
Carlos Hank Rhon of which Laredo National Bank is not a party. With
respect to the Whalen litigation, Laredo National Bank clearly lays
out its charge that Whalen specifically interfered with an executed
contract of purchase between Laredo and Mercantile and that, as a
result, Laredo has been harmed by this interference. Laredo
National Bank has brought these proceedings to prove just that.

Beyond this, we have no further comment, other than to say that the
facts and information in this case speak for themselves. In terms of
the Federal Reserve inquiry with respect to Mr. Hank, Mr. Hank and
his representatives have made it quite clear that the inquiry is
without merit and will be shown to be just that. In summary,
neither litigation is determinative of the other.

Siegfried also called the Fed action inconsistent with of the "intent
and spirit of NAFTA."

Whalen's attorneys point to a timeline they claim will establish that
he could not have interfered with the case before the Fed, and
argue that no one individual can move the Federal Reserve in the
way the plaintiffs claim -- unless that individual is Alan
Greenspan. (Part of LNB's claim is that information provided by
Whalen so slowed the Fed's consideration of the attempt to acquire
Mercantile that the opportunity was lost.) In Judge Salinas'
courtroom, Whalen's lawyers said their client was contacted by Fed
investigators and asked for information. He put them in touch with
the D.E.A. officers who had called him earlier to inquire about the
Hanks, the lawyers insist. The Federal Reserve, they add, is
responsible for LNB's problems.

The lawsuit in Texas is grinding forward and thus far has amounted
to discovery, depositions, and two court hearings. After one
hearing that included a loud, angry discussion at the judge's
bench, John Convery stopped at the back of the courtroom and
commented on the cattle custody suit heard earlier in the
day. "What a great plaintiff," Convery said. "The kind of guy every
lawyer wants on the stand. Honest, sincere, eloquent."

In Laredo, Judge Salinas is expected to rule on jurisdiction for the
Whalen suit within a month. In Washington, the Hanks and Incus
requested a private hearing, claiming that the "'airing of private
and personal business affairs' could act as a disincentive for
foreign investors with unidentified repercussions in Mexico." The
Federal Reserve Board rejected the request and ordered a public
hearing, scheduled for October.