The Oregonian


Firm's Troubles Get Worse


Capital Consultants' failed and at-risk investments are $113 million more than previously estimated, a receiver says


By Jeff Manning and James Long of The Oregonian staff

Tuesday, June 5, 2001


The picture continues to worsen for clients of Capital Consultants, the defunct Portland investment firm that federal regulators seized eight months ago.


Thomas F. Lennon, a receiver appointed by the U.S. District Court to liquidate the firm, now estimates that losses from Capital Consultants' failed and troubled investments will reach $355 million -- $113 million more than he previously estimated.


With Capital Consultants' private investment portfolio totaling $452 million, "a loss of $355 million . . . equals a loss of approximately 79 cents on the dollar," Lennon said Monday in an updated report to Judge Garr M. King of U.S. District Court.


Capital Consultants managed more than $1 billion, including conventional investments such as publicly traded stocks and bonds.


Lennon said he will try to recoup some of the losses to the private portfolio by going after $9.55 million in company funds that Capital Consultants chairman Jeffrey Grayson allegedly disbursed to charities and for personal expenses. One target will be $800,000 that Grayson donated to the University of Oregon Foundation, he said.


Lennon said a forensic analysis of Capital Consultants financial records by KPMG, an international accounting firm, showed numerous deeply troubled loans, including:


• $98 million that Capital Consultants loaned to Miami used car lenders Brooks Financial LLC and Beacon Financial LLC;


• $12 million to Tacoma-based investment firm Oxbow Partners;


• $30 million to Bellingham, Wash.-based timber operator Bayside; and


• $16 million to Washington Alder LLC, a Mount Vernon, Wash., lumber mill.


Those loans have not failed, Lennon said in an interview Monday. But he added that "virtually all of them are in serious jeopardy" and are unlikely to be repaid in full.


The new problems come on top of $160 million in failed loans to the former Wilshire Credit Corp., a business relationship that triggered the collapse of Capital Consultants.


Lennon's report also found vast discrepancies between what Capital Consultants claimed its investments were worth and what creditors can expect to receive.


Capital Consultants listed stocks it holds from private companies as being worth more than $30 million, but Lennon reported that the true value was "perhaps less than $5 million in the aggregate." That would be 16 cents on the dollar, he pointed out.


The report also estimated that Capital Consultants' $65.9 million in real estate investments are now worth about $44 million.


Over the last five years, the report alleged, Grayson used the firm's money liberally for charitable donations, for hunting trips for trustees of union pension fund clients, and even for taxidermists to stuff the trustees' wildlife trophies.


Lennon alleged those payments constituted fraudulent transfers and said he will try to recover $9.55 million.


Capital Consultants was technically insolvent during many of those years, Lennon said in the report. The money effectively came from Grayson's clients, he said. "These bills were paid for by Capital Consultants, which was supported by management fees paid by its clients, including the union pension funds."


Among the payments Lennon will attempt to recover are the $800,000 in Capital Consultants funds that Grayson donated to the University of Oregon Foundation over the past five years. The university recently renamed its former law school building Jeffrey and Susan Grayson Hall.


Lennon also will seek $315,000 in donations to other unspecified charities.


Of the payments that Lennon has challenged, $6.2 million allegedly went to Capital Consultants insiders – primarily to Grayson himself. Grayson, the receiver said, used company money to remodel his $2.5 million vacation home in Carmel, Calif., and to pay personal tax obligations, club memberships and margin calls on personal investments.


Lennon is also challenging the $1.2 million that Grayson paid to Capital Consultants' attorneys and accountants. The professional firms did provide services for the money they were paid. But "the services did not constitute reasonably equivalent value to (Capital Consultants) if they were negligent, violated securities and (federal pension) laws, or otherwise caused harm" to the firm or its clients," Lennon said in his report.


Another $1 million that Lennon wants to recover went to other "third parties."


Wilson Muhlheim, an attorney for Grayson, did not return phone calls.


The U.S. Department of Labor and Securities and Exchange Commission seized control of Capital Consultants last September, accusing Grayson and his son Barclay of concealing massive losses by using new client money to pay pre-existing interest payment obligations on the failed Wilshire Credit loans.


A federal criminal investigation is under way. Barclay Grayson pleaded guilty in March to mail fraud and agreed to a reduced sentence of 18 months in prison in exchange for information about his father and union officials.


John D. Abbott, a former co-chairman of the Oregon Laborers-Employers Pension Trust Fund, pleaded guilty in February to taking $195,000 in payoffs from Jeffrey Grayson and filing a false federal income tax return. He agreed to a reduced term of 15 months in prison in exchange for giving evidence against Grayson and against other labor officials.


Jeff Manning can be reached at (503) 294-7606 or by e-mail at


James Long can be reached at (503) 221-4351 or by e-mail at


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