Gifts To Union Officials Part Of Inquiry Into Portland Firm
The trips given by Capital Consultants to trustees of union pension funds are part of a wider investigation
By Jeff Manning and James Long of The Oregonian staff
September 3, 2000
Embattled Portland money manager Capital Consultants treated union pension fund trustees to lavish hunting and fishing trips, an investigation by The Oregonian has found.
At least nine trustees from five union trust funds that were investing with Capital Consultants went on these outings in 1996-98 – ranging from big-game hunting in Alaska and Montana to charter fishing in Alaskan bays around Sitka.
According to a trustee and a union official who went along on most of the trips, as well as an Alaskan hunting guide hired for one of the excursions, Capital Consultants picked up part of the tab -- at least $22,000 in one case -- for hunting and fishing outfitters, charter-fishing boat operators and, in some cases, lodging and meals.
The U.S. Department of Labor is investigating the trips as part of a wider federal investigation into Capital Consultants and its chairman, Jeff Grayson.
Pension fund trustees are subject to strict federal law aimed at preserving their independence and objectivity. The Employee Retirement Income Security Act of 1974, known as Erisa, requires trustees to perform their duties "solely in the interest of the participants and beneficiaries" of the trusts they represent.
"Large gifts from an investment manager to the plan trustees raise a question as to whether or not the trustees selected the investment manager solely in the best interests of the plan participants," said Dan Feinberg, an Oakland, Calif., attorney who specializes in Erisa issues.
Erisa also contains an anti-kickback provision forbidding a trustee to "receive any consideration for his own personal account from any party dealing with" the pension trust.
Capital Consultants said there was nothing improper about the trips. "The expenses related to these trips whether paid by Capital or the clients themselves were appropriate and reasonable," the company said in a statement issued by a Grayson attorney, Norman L. Sepenuk.
Trustees from the Eighth District Electrical Pension Fund in Aurora, Colo., the Eighth District Electrical Benefit Fund in Salt Lake City, the Port of Seattle Warehousemen's Pension Trust, the Sheet Metal Workers Local 9 Pension Fund of Denver and the 401(k) Retirement Fund of the Office & Professional Employees International Union Local 9 in Portland took part in the Capital Consultants excursions.
As of the end of 1998, those five trusts handed over at least $83 million of their members' retirement money to Capital Consultants.
Two trustees reached by The Oregonian said they paid their own way.
Other union trustees who accepted the Capital Consultants excursions maintained they did nothing wrong. "I ain't taking a kickback from nobody, bud," said Bob Legino, a trustee with the Eighth District.
As part of the larger investigation, a federal grand jury is delving into Grayson's placement of union funds in the ill fated former Wilshire Credit Corp. of Portland. Wilshire Credit's $160 million debt to Capital Consultants clients mostly labor union trust funds -- was extinguished in the 1999 bankruptcy of Wilshire Credit's affiliate, the Wilshire Financial Services Group.
In lieu of the debt, Capital Consultants clients got stock in Wilshire Credit, which is eventually convertible to stock in Wilshire Financial currently worth about $10 million.
The FBI, the Internal Revenue Service and the U.S. Securities and Exchange Commission have formed a task force with the Labor Department to conduct the investigation.
The host and chief organizer of the trips was Capital Consultants salesman Dean Kirkland. Kirkland, the son and grandson of prominent Oregon union officials, impressed union trustees with his labor lineage and the NFL Super Bowl ring he earned as an offensive lineman with the Buffalo Bills.
Over the years, Kirkland has been a highly effective marketer for Capital Consultants, garnering new union trust customers nationwide.
The Eighth District Electrical Pension Fund, which represents more than 9,000 union electricians and their beneficiaries from five Rocky Mountain states, was one of Kirkland's biggest catches. Legino, a labor trustee of the fund and chairman of its investment committee, became one of Kirkland's most frequent traveling companions.
Legino was one of two union trustees who went along when Capital Consultants paid $22,000 to Alaska Trophy Hunting & Fishing for a guided moose and caribou hunt on the Alaska peninsula. In all, Legino attended at least four trips hosted by Kirkland and partially paid for by Capital Consultants.
At first, Legino could recall hunting only once with Kirkland A14 -- and said that "it was right here on my own farm." And that occurred, he said, "after I retired."
Prompted with dates and names, however, Legino recalled that he had indeed accompanied Kirkland to Alaska to shoot moose. He also recollected going with Kirkland on charter-fishing trips to Sitka, an elk-hunting trip to Montana and one safari to Africa.
Except for the African safari, he said, Capital Consultants paid outfitters' and charter fees "but we paid for everything else . . . air fare, hotel bills, any other . . . thing, see."
As for the safari, he said, "technically that didn't cost me any because it was probably 200 something people at my retirement party, and the word got out that I was wanting to go to Africa, so a lot of guys just wrote $10 checks and stuff like that."
The Oregonian documented trips by Kirkland and labor trustees beginning with a salmon charter Aug. 19, 1996 at a resort in Sitka, Alaska. Accompanying the Capital Consultants salesman were Duane L. Tidwell and Ronald L. Green, both fellow labor officials with Legino at Local 68 of the International Brotherhood of Electrical Workers in Denver.
According to Green, he paid for his air fare, which totaled more than $500. But Kirkland paid for the four nights lodging at the Cascade Inn in Sitka, as well as the charter fishing trips. The lodge has for the past three years charged between $1,170 to $1,370 per person for package deals that include three days of fishing and four nights lodging.
"There was money slopping around," Green said, "and some of it slopped on me. I don't feel good about that."
Green was not a trustee at the time. He later left the union in part, he says, because of a falling-out with Legino. He now works as an electrician.
Tidwell could not be reached for comment.
Although it's unclear who footed the bill, Kirkland and various trustees returned to Sitka twice in 1997. The first trip, on May 16, 1997, included Kirkland, Legino and Ben Antunes.
Antunes is an electrical workers union official in Boise and a union trustee. Antunes told The Oregonian that he wasn't a trustee at the time.
However, he is listed as a trustee of the Eighth District Electrical Benefits Fund in that fund's 1997 annual report to the U.S. Internal Revenue Service.
Kirkland was back fishing for salmon in Sitka in June, with fellow anglers who included his father, Gary Kirkland, business manager of the Office and Professional Employees International Union Local 11 and a trustee of the Portland-based local's 401(k) retirement fund; and Ronald Edson and Mark J. Triplett, trustees of the Port of Seattle Warehousemen's Pension Trust. The Port of Seattle Warehousemen have placed its entire $14 million pension fund with Capital Consultants.
Likewise, the office workers' Local 11 401(k) retirement fund placed all of its approximately $38 million with Capital Consultants.
Neither Gary Kirkland nor Edson returned repeated phone calls. Triplett could not be reached.
Then came the Sept. 10, 1997 moose and caribou hunting trip to the Alaska wilderness north of Cold Harbor. Dean and Gary Kirkland and Legino went along. The trio made a lasting impression on officials at the King Salmon airport who still recall a shouting match that ensued when the hunters tried to board a plane without paying for almost 2,000 pounds of excess baggage including moose meat.
The next trip, another salmon charter to Sitka on May 22, 1998, included Dean Kirkland and Blaine A. Newman, a Salt Lake City electrical workers union official and, like Legino, an Eighth District trustee.
That was followed by yet another Sitka trip July 1, 1998, with guests including Edson and Dale A. Swartz, an official of Local 9 of the sheet metal workers in Colorado Springs and a trustee of the union's pension trust.
It's not clear who footed the bill for the Sitka trips. Swartz said Capital Consultants covered none of his expenses. He declined further comment.
In November 1998, Kirkland led Legino, Newman and Robert Mayhew, an electrical workers official and pension trustee from Cheyenne, Wyo., on an elk hunting trip in Montana.
Newman did not return repeated phone calls.
Mayhew said he paid for his expenses on the trip. He added that as far as he was concerned, he went hunting with a personal friend, not a money manager's salesman. "I went hunting with Dean Kirkland, not Capital Consultants. I'd appreciate it if you print that . . ." Mayhew said.
All the trustees who made these trips sat on trust funds that invested with Capital Consultants. Legino headed the Eighth District's investment committee, which as of March 31, 1998, had placed $31.8 million of the electricians' union retirement money with the Portland-based company.
Legino also helped spread the word about Capital Consultants, speaking favorably about the investment adviser when other union officials asked his advice.
Not all Eighth District trustees were comfortable with Capital Consultants.
At a November 1998 trust meeting, the trustees voted to take $11 million away from Capital Consultants and place it with another money manager, Portland-based Crabbe Huson.
Legino was not at that meeting to defend Capital Consultants. He and Newman and Mayhew were hunting in Montana with Kirkland.
Upon his return, however, Legino launched an effort to get the vote reversed, even having Kirkland and Grayson travel to Denver to address the trustees in January. The Eighth District Trust finally rescinded the vote in February 1999 and restored the $11 million to Capital Consultants.
Legino said he championed Capital Consultants solely because it had outperformed competitors. "These guys," he said of the trustees who had voted to switch the $11 million, "took the bucks from our best performer and give it to the loser, and when I got back I say 'What the hell are you guys doing?' "
Crabbe-Huson officials declined to comment.
A month after Legino got the money restored to Capital Consultants, the pension fund took a devastating hit. Wilshire Financial Services Group crashed into bankruptcy, taking the former Wilshire Credit with it.
Of the $31 million the Eighth District had entrusted to Capital Consultants, $23.2 million had been loaned to Wilshire Credit.
Still, Legino kept the faith. Last February, despite mounting apprehension that little of the Wilshire investment would be recovered, the Eighth District pledged another $5 million of pension money to Capital Consultants.