- A federal appeals court overturned a $1.27 billion penalty against Bank of America that was ordered in the "hustle" case, ruling that prosecutors failed to prove Bank of America's Countrywide unit defrauded Fannie Mae and Freddie Mac when selling them troubled loans. - The appeals court said while Countrywide employees may have sold poor quality loans, there was no evidence sales were part of a deliberate deception scheme. - The ruling represents a setback for the Justice Department's prosecution of Wall Street firms after the mortgage crisis.

1. Partly sunny: High 87, Low 76Tuesday, May 24, 2016 | HoustonChronicle.com and Chron.com | Vol. 115, No. 224 | $2.00 xxx
Clowneysayshefeels‘great’
asTexansstartOTAsPAGE C1
Index
Business ... B1
Comics......D4
Crossword ..D3
Directory ...A2
Editorials. A15
Horoscope .D5
Lottery ...... C5
Markets.....B4
Obituaries . B7
Sports....... C1
TV ............D3
Weather ... B8
NATION
Baltimore
officer
cleared in
Gray case
Prosecutors fail for
the second time to
hold Baltimore police
accountable for the
death of Freddie
Gray when an officer
is acquitted in the
case that triggered
riots. Page A9
BUSINESS
UH-Downtown
to expand its
campus north
The University of
Houston-Downtown
plans to buy a
large swath of land
north of its campus
for an expansion
that will bring it
new academic and
student life facilities.
Page B1
CITY | STATE
Ex-VP for police
credit union
gets prison term
A retired vice
president for the
Houston Police
Federal Credit Union
is ordered to pay
$1.2 million in
restitution for
embezzling. Page A3
WORLD
Anti-migrant
candidate loses
in Austria
A pro-European
Union candidate ekes
out a victory over a
right-wing rival to
become the next
president. Page A10
1151901-2016
Houston
Legends:
The legacy of Ima Hogg
includes the Houston
Symphony and much
more.
Page A6
SPONSORED BY
Houston Chronicle
The Main Street
campus will grow to
40 acres after deal.
Tammy Huynh didn’t
recognize her dad when
she saw him for the first
time after eight years.
Like many of her South
Vietnamese friends, she’d
grown up fatherless while
the men served time in
communist re-education
camps, where many were
tortured.
“It was terrible,” said
the 42-year-old Houston
real estate agent who came
to the United States with
herfamilyin1990.
Even for the hundreds
of thousands of Vietnam-
ese who escaped the new
Hanoi government, risk-
ingtheirlivesonmakeshift
boats or holing up in refu-
gee camps in the Philip-
pines, their memories of
thecommunistcountryare
traumatic. Fleeing it and
starting over with nothing
is the defining feature of
theirlives.
So President Barack
Obama’s announcement
Monday that Washington
would lift a decades-old
arms embargo and al-
low Vietnam to buy lethal
military equipment was
met with mixed feelings: a
grudging recognition that
geopolitics in the region
had changed but also a re-
By Lomi Kriel
Vietnam continues on A13
Members of Houston community
express concern about human rights
›› See how immigrants from around the world transform the city at HoustonChronicle.com/local/themillion
Lifting Vietnam arms ban
stirs mixed feelings
President Barack Obama and national security adviser Susan Rice meet Vietnamese officials Monday in Hanoi.
Carolyn Kaster / Associated Press
›› Obama’s decision to sell
arms to Vietnam is seen as a
warning to China. Page A10
Angela Sugarek plays with her foster child Monday
after he and his brother were returned to Sugarek
and her wife, Carol Jeffery, by Child Protective
Services. Lisa Falkenberg column on page A3.
Family together again
Michael Ciaglo / Houston Chronicle
WASHINGTON — As
Republicans start to co-
alesce around Donald
Trump’s presidential
campaign, a high-stakes
game is playing out over
what role defeated rival
TedCruzcouldplayatthe
party’s July national con-
ventioninCleveland.
Almost three weeks
sincetheIndianaprimary
that knocked Cruz out of
therace,theTexassenator
continues to withhold his
supportfortheoutspoken
real estate mogul, whom
heattackedas“utterlyim-
moral” and a “pathologi-
calliar.”
At stake for Cruz is a
coveted speaking slot at
theconvention,aplatform
that served as a launch
pad to the White House
for Presidents Ron-
ald Reagan and Barack
Obama.
With his eye on 2020,
Cruz faces a difficult time
of choosing between his
conservative principles
and the pragmatic need
for party unity in the face
of the coming fall clash
with presumptive Demo-
cratic nominee Hillary
Clinton.
Officials in the Trump
and Cruz camps — the
top two rivals in the GOP
nomination battle — de-
clined to comment on
their plans for a possible
Cruz’s
role in
Cleveland
up in air
By Kevin Diaz
Cruz continues on A13
HISDsuspendedauditorafterheateddispute
Houston’s school board
removed its chief auditor
after he reported potential
violations of state law to
police, shared information
with the FBI and called
out a board member for
breaking competitive bid-
ding rules, newly obtained
documents and interviews
show.
At one point last fall,
after the auditor, Richard
Patton, released an audit
blaming cost overruns in
the Houston Independent
School District’s $2 billion
construction program on
insufficient competitive
bidding and inadequate
monitoring, he was cas-
tigated by the school dis-
trict administration for
recklessness and “flawed
methodology.”
Patton fired back in an
email, recently obtained
by the Houston Chronicle:
“I am going to say this only
once — this district does
not want the real dirt to be
published. ... What is the
value in having a gunfight
that you seem to desire?”
Three days before his
March 10 suspension, Pat-
ton received an email from
the district’s treasurer,
asking him whether HISD
had been the subject of any
significant civil or crimi-
nal investigations in the
last two years. The trea-
surer was seeking infor-
mation that may need to be
disclosed to potential in-
vestors as HISD prepared
for a $757 million bond of-
fering as part of its ongo-
By Ericka Mellon
HISD continues on A14
Documents show Patton talked with
law enforcement over contracting
After slipping for three
straight months, regional
newvehiclesalesplummet-
ed by more than 30 percent
in April from a year earlier,
suggesting that economic
jitters in the oil patch have
consumers in Houston
hunkering down for leaner
times.
“When auto sales start
to fall, that’s a suggestion
that consumer confidence
is falling as well,” said Pat-
rick Jankowski, senior vice
president of research with
the Greater Houston Part-
nership.
Year to date, sales are
down 13.2 percent — a far
steeper decline than the
4 percent annual dip that
was forecast at the begin-
ningoftheyear.
The numbers stand in
stark contrast to national
figures showing Ameri-
cans brought 3.5 percent
more new cars, trucks and
By Mike D. Smith
Auto continues on A13
Plunge in auto sales suggests
economic jitters rising here
By the numbers
-13.2%: Year-to-date
decline in new vehicle
sales in the Houston area.
23,652: Number of
new vehicles sold in the
Houston area in April.
-11,600: Drop in sales
of new vehicles in April
compared to last year.
-3.2%: Sales of vehicles
priced under $30,000
took the biggest hit here.

2. Houston Chronicle | Tuesday, May 24, 2016 | HoustonChronicle.com and Chron.com Section B xx
BUSINESS
AT A GLANCE
DOW 17,492.93, down 8.01 (-0.0 %)
S&P 500 2,048.04, down 4.28 (-0.2 %)
CRUDE OIL $48.08, down 33¢ (-0.7 %)
NATURAL GAS $2.055, down 0.7¢ (-0.3 %)
@HoustonChronHouston Chronicle
Germany’s Bayer
offers $62 billion
for Monsanto.
INSIDE
Page B3
A federal appeals court
dealt a blow to the federal
government’sefforttohold
Bank of America account-
able for the sale of shoddy
mortgages before the fi-
nancial crisis, overturning
a $1.27 billion penalty the
bank had been ordered to
pay in the so-called “hus-
tle”case.
A three-judge panel
ruled on Monday that
federal prosecutors had
failed to prove that Bank
of America’s Countrywide
unit had defrauded Fannie
Mae and Freddie Mac, the
government-backed mort-
gage firms, when it sold
themtroubledloans.
The judges said that
while Countrywide em-
Court
backs
Bank of
America
MORTGAGES
By Michael Corkery
NEW YORK TIMES
‘Hustle’ on B2
A small movie theater
chain tallied another win
toward its lawsuit alleging
that AMC Entertainment
Holdings and Regal En-
tertainment Group are col-
laborating and pressuring
studios to restrict access to
majorreleases.
On Monday, iPic Enter-
tainment announced that
AMC’s requests to end
the lawsuit were denied.
Hamid Hashemi, CEO of
iPic, said AMC denied it
conspired with Regal and
also claimed state District
Court in Harris County
wasnottherightvenue.
“It’s really exciting for
us and other smaller ex-
hibitors because for the
first time a court is look-
ing at it,” he said. Florida-
based iPic operates 13 lux-
Small theater
chain wins ruling
NEW MOVIES
By Andrea Rumbaugh
Brett Coomer /
Houston Chronicle
Hamid Hash-
emi, iPic En-
tertainment
CEO, tried
out a seat
before one
of his the-
aters opened
in Houston
last fall. His
company is
suing two
major theater
chains.
Theater continues on B2
T
HE UNIVERSITY
of Houston-Down-
townplanstobuya
large swath of land
north of its Main
Street campus for an expan-
sion that will bring new aca-
demic and student life facili-
tiestotheuniversity.
The school received ap-
proval from the University
of Houston System Board of
Regents to pay $13.2 million
for the 17-acre property cur-
rently ownedby a partnership
thatincludestheMetropolitan
TransitAuthorityandaHous-
tonrealestatedeveloper.
The partnership, Welling-
ton Fisher, has owned the
acreage for more than a de-
cade, after buying it from Ha-
keem Olajuwon, the former
Houston Rocket star who’s
alsobeenarealestateinvestor.
“This land has been on the
university’s radar for a long
time,” said David Bradley,
UHD’s vice president for ad-
ministration and finance. “We
hoped one day we could own
it.”
It was once being consid-
ered for a intermodal transit
project, but Metro abandoned
UH-Downtown to expand
REAL ESTATE
School wins OK for purchase of 17 acres
north of its campus for $13.2 million;
science and technology building planned
Metro’s light rail serves the UH-Downtown campus. The school plans to buy land north of its Main Street home.
Houston Chronicle file
UHD continues on B2
By Nancy Sarnoff
Chronicle
45
45
10
W
hiteOakBayou
Naylor
Burnett
Franklin
University
of Houston -
Downtown
Commerce
Main
MilamTravis
Fra
500 ft.
5
W
School site
The oil drillers that
scour the world for new
sources of petroleum
stayed home last year,
discovering the lowest
amount of oil outside of
North America in more
than60years.
Dissuaded by a severe
energy downturn that
made survival the high-
est priority for many
companies, the industry
discovered 2.8 billion bar-
rels of crude outside of
North America last year,
the lowest amount since
1952, according to a report
released Monday by the
research firm IHS Energy.
Most of the new reserves
werefoundoffshore.
Last year’s discoveries
amounted to just a fraction
of the historical average
of about 13 billion barrels
a year, according to IHS.
For the first time, oil dis-
coverieshavedeclinedfour
consecutive years, IHS
said, meaning that in a few
years, despite the current
glut, it will be difficult for
the industry to restock the
world’senergysupplies.
“Exploration has been
charged with providing a
quarter (of the oil and gas
the world demands), but it
has fallen short,” said Bob
Fryklund, chief upstream
strategist at IHS Energy.
“We’regoingtohavetorely
onotherresourcestomake
upthedifference.”
More than 70 publicly
traded oil companies cut
their exploration spend-
ing by a third last year to
cope with the plunge in oil
prices.
Houstoncompanieslike
ConocoPhillips,Anadarko
Petroleum Corp. and EOG
Resources cut spending
for the search for crude by
a combined $15 billion last
year. ConocoPhillips, the
third-largest U.S. oil com-
pany, said last year that
it plans to wind down its
deep-water exploration
businessin2017.
Another Houston com-
pany, Apache Corp., cut
exploration spending
by nearly two thirds, to
$4.5billion.
Meanwhile, Mara-
thon Oil Corp., also based
in Houston, reduced its
By Collin Eaton
Drillers in 2015 found lowest amount
of oil outside of North America
in more than 60 years, report says
Crude exploration wanes amid the energy downturn
Ocean continues on B2
The hostile takeover bid
by Houston-based West-
lake Chemical to acquire
Atlanta’s Axiall Corp.
could become a bit more
amicable now that Axiall
is expressing a new open-
nesstoconsideringrevised
offers.
Westlake President and
CEO Albert Chao has cov-
eted the Atlanta-based Ax-
iallforyears,andlaunched
a proxy battle to replace
Axiall board members
who have blocked West-
lake’s bid with his own
slateofcandidates.Axiall’s
shareholdersmeetJune17.
Axiall’s chief financial
officer, Gregory Thomp-
son, has asked Westlake
to submit a new offer by
June3,WestlakesaidMon-
day. Axiall rejected an ini-
tial $1.4 billion offer from
Axiall
more
open
to a deal
WESTLAKE CHEMICAL
By Jordan Blum
Westlake continues on B2

3. B2 | Tuesday, May 24, 2016 | Houston Chronicle | HoustonChronicle.com and chron.com x x
Monday’s appeals court ruling in the “hustle” case represented a departure for Bank of America, which
settled most of its mortgage-related charges before they went to trial. The bank is based in Charlotte, N.C.
Saul Loeb / AFP / Getty Images file
‘Hustle’ from page B1
‘Hustle’ mortgage ruling
goes against prosecutors
ployees may have sold
loans in 2007 and 2008
that were not of the quality
that was promised in the
contracts with Fannie and
Freddie, there was no evi-
dence that these sales — an
element of a loan program
at Countrywide that was
known informally as hus-
tle—werepartofadeliber-
atedeception.
“The trial evidence fails
to demonstrate the con-
temporaneous fraudulent
intent necessary to prove a
scheme to defraud,” Judge
Richard Wesley wrote in a
31-pageruling.
The ruling by the 2nd
U.S. Circuit Court of Ap-
peals is one of a few set-
backs in the Justice De-
partment’s prosecution
of Wall Street after the
mortgage crisis. It is also a
disappointment for Preet
Bharara, the U.S. attorney
for the Southern District
of New York, who brought
the prosecution against
Bank of America and
called its practice of rub-
ber-stamping risky loans
and selling them to Fan-
nie Mae and Freddie Mac
“spectacularlybrazen.”
The bad lending ulti-
mately required a taxpay-
er-financed bailout of the
nation’s biggest banks, in-
cludingBankofAmerica.
In2014,JudgeJedRakoff
of the U.S. District Court
in Manhattan ordered the
bank to pay a $1.27 billion
penalty in the hustle case.
But that sum is a small
fraction of the tens of bil-
lions of dollars the bank
has paid in legal fees and
settlements related to
Countrywide, which Bank
ofAmericaboughtin2008.
Since 2010, Bank of Amer-
ica has spent $37 billion on
litigationexpenses,mostof
itrelatedtothelegalfallout
fromthefinancialcrisis.
The hustle case stood
out because in addition to
Bank of America, pros-
ecutors had sought to hold
RebeccaMairone,aformer
Countrywide executive, li-
ableforthefaultyloans.
It also represented a de-
partureforBankofAmeri-
ca,whichsettledmostofits
mortgage-related charges
before they went to trial.
But from the beginning,
the bank’s lawyers were
betting they could win the
hustlecase.
“The 2nd Circuit under-
stood this was a massive
government overreach
from the beginning,” said
Josh Rosenkranz, who
represents Mairone. “The
message is that govern-
ment should stop looking
for fraud where it doesn’t
exist.”
The U.S. can ask the en-
tire panel of the appeals
court judges to reconsider
the ruling. A spokesman
for Bharara declined to
commentonthedecision.
The case was called
hustle because the gov-
ernment’s case involved a
program at Countrywide
known as the High-Speed
Swim Lane that the lender
createdtosellmortgagesto
Fannie and Freddie as the
subprime mortgage mar-
ketwasimploding.
Duringthetrial,inOcto-
ber 2013, federal prosecu-
tors accused Mairone of
overseeing the high-speed
lane program that pushed
through loans to unquali-
fied buyers and ultimately
failed, causing more than
$1 billion in losses. The
faster that employees orig-
inated loans, the higher
theirbonuses,accordingto
testimony.
The appeals court ruled
that Countrywide’s con-
tracts with Fannie and
Freddie may have includ-
ing false statements. But
even“intentional”contract
breachesdidnotconstitute
fraud on the part of the
lender,therulingsaid.
The ruling is also a
vindication for Mairone,
who worked at JPMorgan
Chase at the time of the tri-
al and had to leave her job
afterthejuryconvictedher
on one count of fraud, her
lawyersaid.
Theappealscourtruling
means Mairone does not
have to pay the $1 million
penalty that the district
courthadordered.
The government’s case
was based on a whistle-
blower complaint origi-
nally brought by Edward
O’Donnell, a former Coun-
trywideexecutive.
O’Donnell received $57
million from the govern-
ment for his role in bring-
ing the issues to light. His
lawyer said the appeals
court ruling would not af-
fectthatpayout,whichwas
tied more broadly to his
work helping federal pros-
ecutors reach a $16.65 bil-
lion settlement with Bank
ofAmericainAugust2014.
urytheatersnationwide.
Paul Yetter of Hous-
ton-based Yetter Cole-
man, which is represent-
ing iPic, called the ruling
important because it
allows the plaintiffs to
presentevidencethatRe-
gal and AMC conspired
againstiPic.
“The court’s ruling
allows us to expose this
conspiracy at trial,” he
said.Thetrialisslatedfor
Oct.3.
River Oaks District
The lawsuit was filed
in November, the same
month that iPic opened
an eight-screen, 578-seat
theater in Houston’s Riv-
er Oaks District luxury
shopping and residential
development on West-
heimer.
Regalthreatenedmov-
ie studios, iPic alleges, by
telling them it wouldn’t
play recently released
movies at Edwards
Greenway Grand Pal-
ace Stadium 24 & RPX if
studios also licensed the
films to iPic Houston.
IPic won an injunction
in January to stop such
practices.
The boutique theater
chain likewise alleges
that AMC is using the
same tactic toward a
theater it’s building in
Frisco, about 25 miles
north of downtown Dal-
las. That theater is slated
toopeninlate2017.
AMC, Regal
An AMC spokesman
said in an email that the
company doesn’t com-
ment on pending litiga-
tion, and Regal didn’t
respond to requests for
comment. In court fil-
ings, AMC said there
is “not a scintilla of evi-
dence of any conspiracy
between AMC and Re-
gal. Instead, the evidence
that has been uncovered
affirmatively refutes any
communication or coor-
dination between AMC
and Regal regarding iPic
orclearances.”
Hashemi said he’s go-
ing to court for damages
— some studios didn’t
license movies to iPic be-
foretheinjunction—and
to get protection for iPic
nationally.
“They’re using their
size and power to stop
competition,”hesaid.
Theater
chain
takes on
2 bigger
rivals
Theater from page B1
andrea.rumbaugh@chron.com
twitter.com/andrearumbaugh
nancy.sarnoff@chron.com
twitter.com/nsarnoff
those plans several years
ago after spending $41 mil-
liononit.
The authority owns the
land in partnership with
developer Rocky Stevens.
Metro referred questions
about the sale to Stevens,
who was not immediately
availableforcomment.
“I believe that the new
campus footprint will be
viewed as among the most
significant developments
in the university’s insti-
tutional history,” board
Vice Chairman Welcome
Wilson Jr. said in an an-
nouncement Monday.
“This land acquisition as-
sures UHD has the needed
acreage for enrollment
growth, campus expan-
sion and development
of new academic pro-
grams.”
The land is expected to
house a new science and
technology building, ap-
proved by the Texas Legis-
laturelastspring.
The university is in the
process of selecting an ar-
chitectural firm to design
the building, which UHD
hopes to have open by
summer2019.
Much of the land is in
the 100-year floodplain, so
development will require
approval from the Harris
County Flood Control Dis-
tricts,Bradleysaid.
“Our plan is to leave a
lot of it green for the fore-
seeable future,” Bradley
added.
The acquisition will in-
crease the size of the uni-
versity’s downtown digs
to 40 acres on both sides of
Interstate10.
The 17-acre tract an-
nounced Monday will give
the university control of
27 contiguous acres bor-
deredbyWhiteOakBayou
to the west, North Main to
the east, the Union Pacific
railroadtrackstothenorth
andtheexistingUHDcam-
pustothesouth.
The land, once owned
by the Union Pacific Rail-
road,usedtocontainware-
housesandarailline.
Bradley said the univer-
sity is aware of a plan by
the Texas Department of
Transportation to expand
and rebuild highways
around downtown, which
potentially could affect the
newlyacquiredsite.
He said the portion of
the acreage the school
wants most would not be
affected.
UntilTxDOT’splansbe-
come more clear, the land
initsproposedpathwillbe
used for green space and
ballfields.
The land deal is expect-
edtocloseinAugust.
UHD says land assures the space to grow
UHD from page B1
spending by more than
half,to$2.8billion.
“The first thing that
always gets cut is explo-
ration because it’s discre-
tionary,”Fryklundsaid.
Companies drilled
4,300 conventional explo-
ration and appraisal wells
last year, IHS says, com-
paredto5,300in2012.
Oil companies also
retreated from the ocean
depths. Deep-water
drilling, defined as drill-
ing in 1,000 to 5,000 feet of
water, dropped by 20 per-
cent last year, while drill-
ing in waters more than
5,000 feet deep declined
40percent.
Shale revolution
But it’s hard to over-
statetheimpactoftheU.S.
energy boom on interna-
tionalexploration.
The so-called shale
revolution drew oil pro-
ducers to North America,
away from more expen-
siveandriskyinvestments
in international waters,
Fryklundsaid.
From 2000 to 2010, all
international exploration
yielded 246 billion barrels
in discovered resources,
while shale formations
in the United States alone
added nearly 200 billion
barrels.
‘Down the road’
“Still, if you curtail
exploration by the mas-
sive amounts that we’re
seeing, then it’s going to
affect things — not today,
not tomorrow, but five
yearsdowntheroad,”said
Fryklund, noting that re-
newable sources such as
wind and solar will have
toplayabiggerrole.
“It’s all part of the tran-
sition to the future,” he
added.
Ocean
depths
drew
fewer
crude
drillers
Ocean from page B1
collin.eaton@chron.com
twitter.com/CollinEatonHC
WestlakeinJanuary,thena
subsequent$1.6billionbid.
The two petrochemical
companiesarecompetitors
that make plastics, vinyls,
building materials and
otherproducts.
Westlake previously
made a run at buying the
company in 2012, when
it was still called Georgia
Gulf Corp. Westlake re-
ported revenues of more
than $1 billion last year,
compared to $755 million
forAxiall.
“The Westlake guys are
very serious,” said Has-
san Ahmed, an analyst at
New York equity research
firm Alembic Global Ad-
visors. “It’s very different
from 2012. The difference
is this time they actually
assembled a board. That’s
apainstakingprocess.”
Axiall said its leaders
remain open to continu-
ing negotiations, but they
believe Westlake’s offers
thus far are inadequate.
Westlake said it will either
submit a new offer or reaf-
firm the previous offer of
$23.35pershare,or$1.6bil-
lion. Westlake would also
assume $1.5 billion in Axi-
alldebt.
Westlake first made
the offer in January, when
Axiall’s stock fell below
$10 a share. Axiall’s stock
surged when Chao soon
after disclosed the offer
rejected by Westlake, and
it closed Monday at $22.65
a share, up 36 cents on the
day.
Ahmed said Westlake is
in a position of strength as
it heads toward the proxy
vote. Axiall shareholders
are frustrated by the com-
pany’sunder-performance
in recent years, Ahmed
said, and many are open to
adealifWestlakeincreases
its offer to more than $25
pershare.
Westlake started with
low-ball numbers, so a
stronger offer will be need-
edtoclosethedeal,hesaid.
“Westlake has a far bet-
ter track record of manag-
ingassets,”Ahmedadded.
Earlier this year, it
looked like the Westlake-
Axiall saga would play out
as it had in the past, with
the bid becoming hostile,
butultimatelyfailing.Four
years ago, Georgia Gulf
Corp., which became Axi-
Westlake Chemical has sought Axiall for years
Westlake from page B1
jordan.blum@chron.com
twitter.com/jdblum23
all in 2013, rejected offers
of $1 billion and $1.2 billion
before Westlake withdrew
itsbid.
But the proxy fight
changes things, said
Ahmed.“Somethingisdef-
initelygoingtohappen.”
FROM THE COVER
3.01%