The Oregonian





Capital Consultants' Moves Follow Winding Path


The government charges that the investors hid losses with a series of deals with front companies



By Jeff Manning and James Long of The Oregonian Staff

September 24, 2000




Federal regulators have been studying Capital Consultants' operations off and on for several years.


By this summer, as repeated stories in The

Oregonian were raising significant questions about

Capital Consultants and the fate of the $160 million

investment, federal regulators were taking a harder

look at the firm.


On Thursday, regulators charged Capital Consultants with constructing a multimillion dollar Ponzi-like cover-up winding through five different companies in Oregon, Washington, New Jersey and Florida. According to lawsuits filed by the Securities and Exchange Commission and U.S. Department of Labor, here's how the scheme worked:


In November 1998, Capital Consultants exchanged $160 million in debt from the faltering Wilshire Credit for the rights to stock – then worth less than $2 million and now worth about $13 million -- in Wilshire Financial Services Group, an affiliate company of Wilshire Credit.


In January 1999, Capital Consultants told its clients that Sterling Capital LLC had agreed to assume the $160 million in loans that had formerly been owed by Wilshire Credit. Sterling was a 2-month-old New Jersey company headed by Daniel D. Dyer, a Tacoma-based investor with long-standing ties to Capital Consultants.


For more than a year afterward, Capital Consultants told clients that Sterling was making their interest payments. In reality, according to the SEC's complaint, Dyer had told Jeffrey Grayson, head of Capital Consultants, by February 1999 that his company didn't have the money to make the payments.


To pick up where Sterling failed, in June 1999, Jeffrey and Barclay Grayson brought in Brooks Financial LLC, a used car finance company from Miami, which agreed to assume two-thirds of the Wilshire debt, or about $108 million. Thus, under the new arrangement, Brooks would pay $1 million a month in interest and Sterling the other $500,000 a month.


There was just one catch: Neither company had that kind of money, the lawsuits allege.


So the Graysons, say government regulators, agreed to provide the funds for Sterling and Brooks to make the loan payments -- out of Capital Consultants' clients' own money.


Why Dyer or Timothy Gamwell, head of Brooks, would get involved in such a scheme is unclear. Gamwell, who has consistently denied any wrongdoing, refused to comment for this story.


Dyer could not be reached and has declined repeated requests for interviews. In its lawsuit, the U.S. Labor Department claims the Graysons enticed Dyer and Brooks with the promise of additional cash "in order to induce them or enable them to participate" in the cover-up.


Neither Grayson could be reached for comment.


Capital Consultants agreed to provide Brooks with a $50 million line of credit. Capital Consultants' June 4, 1999, loan agreement with Brooks said the used car lender's obligation to pay the Wilshire interest was "limited solely to the availability of funds" provided by Capital Consultants.


Between June and December 1999, according to the government lawsuits, Capital Consultants loaned $38.1 million of its clients' money, much of it union retirement money, to Brooks. All the while, the court documents allege, the Graysons were taking money from Brooks -- $7.84 million total -- and giving it back to their clients, representing it as interest payments on the Wilshire debt.


For reasons that are still unclear, the Miami-based used car financiers formed another company, Beacon Financial LLC. Again, Capital Consultants stepped up with a $50 million line of credit. From January to July 2000, according to the lawsuits, Capital Consultants loaned Beacon $33.88 million and took $7.37 million out of the loans, using it to pay the Wilshire interest.


Thus, Brooks and Beacon together, using money provided from Capital Consultants, covered two-thirds of the Wilshire interest due.


In July 1999, according to the SEC complaint, the Graysons created a plan to get Sterling the money to pay the other third of the debt.


At this point, the maneuvers became particularly convoluted and obscure.


First, Dyer started an investment fund called Oxbow Fund B. For the next 12 months, according to the court documents, Brooks and Beacon wired Oxbow Fund B $8.86 million from the money Capital Consultants had provided to them.


Oxbow B then used its new money to buy the stock of a small technology start-up from another company controlled by Dyer. Oxbow B bought stock of Topia Ventures for $12 a share. The deal netted Dyer at least $5.5 million in "profits," which he then steered to Sterling, which then used it to make its share of the Wilshire payments between August 1999 and June 2000.


In recent months, eight SEC lawyers and examiners and six U.S. Department of Labor investigators have been bird-dogging the case and demanding answers about the relationships between Capital Consultants and Sterling and Brooks and Beacon.


After filing the two separate lawsuits Thursday charging securities fraud and federal pension law violations, federal authorities seized control of Capital Consultants and barred the Graysons from the money management industry.


No charges have been filed against Dyer or Gamwell. Bette Briggs, of the Labor Department's Pension Welfare Benefits Administration, said the investigation is continuing.

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