Money Firm Faces New Scrutiny
Officials are investigating a deal that Capital Consultants made for a union chief who helped steer funds to the company
By Jeff Manning and James Long of The Oregonian staff
July 30, 2000
Capital Consultants LLC arranged a business deal netting $60,000 for a powerful official of union trust funds that were investing millions of dollars through Capital, according to an investigation by The Oregonian.
John D. Abbott, then top executive of the Oregon, Southern Idaho & Wyoming District Council of Laborers, got the money in connection with the sale of his late wife's catering company -- a small, unincorporated, unregistered operation that had no food preparation license, no commercial kitchen, no vehicles and only one full-time employee.
At the time, the Laborers were one of Capital Consultants' biggest clients, with more than $100 million under management in 1998. And Abbott was the union's most influential regional official and helped control at least two union trust funds that steered millions to Capital Consultants, a Portland money management firm founded and headed by Jeffrey Grayson.
The U.S. Department of Labor, which enforces federal laws governing the behavior of pension trustees and managers, is investigating the Abbott transaction. The purchaser of the catering business, Dennis E. Hamlin, who worked for the company when Nancy Abbott died, told The Oregonian that the Labor Department has subpoenaed him and his loan documents.
Eleven months after Grayson helped Abbott sell the company, Abbott quit his union posts under fire for allegedly misappropriating union funds while in office.
The international union forced Abbott out of office in November 1998 and referred the case to the Labor Department for possible criminal prosecution. The investigation is still active, the union said.
But Portland attorney Norm Sepenuk, who represents both Abbott and Grayson, said there was "absolutely no quid pro quo" in the catering loan. Sepenuk said the loan did not come from union trust funds and that $60,000 was a reasonable price for the business. Nancy Abbott, he said, earned $40,000 on her catering activities in 1996.
The Oregon Laborers-Employers Pension Plan, Sepenuk said, actually reduced its placements with Capital Consultants shortly before the deal closed, giving $6 million to other managers in December 1997. Although Abbott was co-chairman of the pension plan, Sepenuk said, "he was just one of five labor trustees."
Sepenuk also said Abbott got clearance from Mort Zalutsky, the Laborers' pension plan lawyer, before enlisting Grayson's assistance.
The investigation into Abbott's dealings with Capital Consultants comes amid a wider investigation by the Labor Department, the FBI, the Internal Revenue Service and the Justice Department into Capital Consultants' relationship not only with Abbott but with other parties.
A federal grand jury in Portland is looking into Capital Consultants' dealings with the former Wilshire Credit Corp., which collapsed in 1999 owing Capital Consultants $160 million. Most of the money came from union trust funds including the Laborers'.
Late in 1997, Abbott told Grayson he needed to sell a small catering business that his late wife had operated from the kitchen of their Portland home.
Grayson arranged a complicated loan in which he packaged the Abbott company with another small caterer and lent an Aloha businessman the money to buy both.
Hamlin told The Oregonian that Grayson's firm lent him $166,000 to buy the two companies and that $60,000 of it went directly to Abbott as his proceeds from the sale.
Grayson acknowledged in an interview that Abbott came to him about selling the catering company but that he didn't feel it was appropriate for one of his union clients to fund the loan, because of Abbott's position.
"What I said was, here are some people you should talk to in the catering business," Grayson told The Oregonian. He said he got the funding from a wealthy individual client.
Hamlin's recollection of Grayson's role is different.
He said he needed no introduction to Abbott because he was already an employee of the Abbott catering business and was cooking regularly in the kitchen of Abbott's Portland home.
Nancy Abbott had built a thriving small business serving a client base made up in substantial part of unions and labor officials. But the business's future was thrown into question when Nancy Abbott died suddenly in March 1997. Except for the good will and contacts that she had built up, the company appeared to have few assets.
State and county records contain nothing to show that the company was ever registered or licensed. No vehicle registrations could be found, and state and county health officials said, after repeated searches of their records, that they could find no evidence that a food service license was ever issued to a Nancy Abbott or any business located at the Abbott home.
The business was not listed in an inventory of Nancy Abbott's estate filed in the Washington County Probate Department in May 1997.
In Hamlin's recollection, nine months after he began running the business, Grayson "called me out of the blue" and offered to lend him as much as $200,000 to buy the Abbott business plus another small catering firm in Northeast Portland, without his having to put up a dime.
Hamlin said he was surprised by the offer, not only because his credit history was poor -- he'd gone bankrupt in 1987 but also because he had little experience running a catering business and had graduated from culinary school less than a year earlier.
Hamlin said he worried that the two catering firms were too small to repay a loan as big as the one Grayson was offering. But Grayson, he said, nixed his suggestion that he buy just the second company, Jane Bergin Catering. He wanted Bergin because it had a commercial kitchen, experienced workers and a clientele of repeat customers that included film production companies. But "without the Abbott company," Hamlin said, "there was no deal. Period."
Abbott's catering company deal closed about Jan. 6, 1998, and on Feb. 10, 1998, Abbott repaid the union $150,184 in allegedly personal charges on his union credit card expenditures that an audit by the international union would uncover in March 1998.
Abbott left Portland soon after selling the company and is now living in Southern California.
As Hamlin feared, his company, which he had dubbed Hamlin Gourmet Foods, quickly fell behind. He couldn't keep up the $2,300-a-month payments he owed Capital Consultants. He said Capital Consultants restructured the loan to reduce the strain. Nevertheless, Hamlin said, he shut down his company in May of this year still owing Grayson's firm $166,000. And Hamlin told The Oregonian he may be headed back to bankruptcy court.
Jeff Manning can be reached at 503-294-7606 or by e-mail at firstname.lastname@example.org.
James Long can be reached at 503-221-4351 or by e-mail at email@example.com.