JEFF MANNING and JAMES LONG
Portland investment manager Jeffrey L. Grayson, the chief suspect in the largest financial scandal in the city's history, appeared publicly in court for the first time Friday -- without a lawyer.
Grayson, the multimillionaire founder of Capital Consultants, told U.S. Magistrate Janice M. Stewart that he didn't have money to hire the criminal defense attorney he wanted because a judge froze his assets last September when federal regulators seized the company and forced him out.
The U.S. Securities and Exchange Commission and the Department of Labor accused him of running a Ponzi-like scheme to conceal failed investments. Capital Consultants clients, many of them union pension funds, have lost an estimated $355 million.
Stewart postponed Grayson's arraignment Friday until Oct. 26 to give him time to get a lawyer. Grayson said in court that he has asked U.S. District Judge Garr M. King, who tied up most of his assets more than a year ago, to approve payments for his defense.
Grayson and the receiver are attempting to negotiate with King a mutually acceptable amount of money. Those negotiations have been kept secret.
Lawyers for the clients who lost money object to Grayson's request for funds. Every dollar that goes to Grayson is one less dollar available for the victims, they say.
Capital Consultants' "remaining assets are not even close to sufficient to pay the pensions of the thousands of individuals who worked hard to provide for their families," said Dan Feinberg, an Oakland, Calif., lawyer representing union workers in the case. "It would be appalling if Mr. Grayson could cut to the front of the line and get a portion of that money."
Defendants have a constitutional right to legal representation. Feinberg argues that if Grayson doesn't have the money, he should get a court-appointed defender.
Friday's hearing was the first step in the federal criminal case against Grayson. A grand jury indicted Grayson last week on 22 felony counts relating to his allegedly illegal dealings with a former union trust funds chairman.
Grayson, the indictment said, made illegal payments of more than $200,000 to former Oregon Laborers union official John D. Abbott and conspired with Abbott to conceal the payments.
The indictment included 14 counts of mail fraud, three counts of "giving or offering to give gratuity to trustee of employee benefit plan," three counts of laundering monetary instruments, one count of tampering with a witness and one count of conspiracy.
Assistant U.S. Attorney Lance Caldwell said a federal investigation is continuing into "allegations of fraud in connection with Capital Consultants investments, including loans to Wilshire Credit Corp." Two former executives of the Portland-based credit company, Andrew A. Wiederhorn and Lawrence A. Mendelsohn, have been notified by federal prosecutors that they are also targets of the grand jury.
"The investigation is continuing, and other indictments are possible," Caldwell said.
Federal rules require that a trial begin 70 days after Grayson's scheduled arraignment Oct. 26, unless a postponement is granted. However, Caldwell said he expected the trial wouldn't get under way "until the first couple of months of next year." He predicted that the trial would take "only two or three days."
Under federal sentencing guidelines, Grayson might serve about six years if convicted on all counts of the indictment.
Stewart released Grayson Friday on his own recognizance. On Caldwell's request, Stewart prohibited Grayson from having any contact with two prospective witnesses at his trial, Abbott and Mostapha Arooni, a former Capital Consultants employee. The witness-tampering charges against Grayson stem from his alleged efforts to get Arooni, a longtime aide to Grayson, to lie to the grand jury.
Grayson is looking for another lawyer because his first choice, Norm Sepenuk, a prominent Portland criminal defense attorney, was forced to bow out due to client conflicts.
Sepenuk has served as Grayson's counsel in the past and said he continues to do so. But he can't represent Grayson in this criminal case because he worked for Abbott early in the case. Abbott pleaded guilty in February 2000 to accepting $195,000 in illegal payoffs from Grayson.
Grayson now wants to hire Harvey Silets, a Chicago criminal defense lawyer, but Silets said he has hesitated to get involved because it is unclear whether Grayson could pay his fees.
After Friday's court hearing, Grayson told The Oregonian that Silets has offered to give him a price break. "He's agreed to come down to Oregon rates," Grayson said.
Grayson said he expects King to rule on his request for funds on Tuesday.
Grayson has been on a living allowance since the judge froze his assets. Last November, his lawyers submitted to the court a personal financial statement listing personal assets of $4.4 million. These included his residence on Southwest Patton Road in Portland valued at $1.8 million and a house in Carmel, Calif., worth a reported $1.3 million. Grayson reportedly had $149,737 in the bank and an irrevocable living trust containing $450,965 and "other personal property" totaling $615,937.
The list also contained many assets with "unknown" values, including a Seaside beach house. Grayson also reported investments in 16 companies and real estate developments with undetermined values.
The same statement listed liabilities totaling $23.6 million. The bulk of it was listed as unexplained "unsecured contingent" liabilities.
Grayson is married to Susan W. Grayson, whose father and uncle founded Wilhelm Trucking Co., a large Northwest Portland trucking operation. Her assets were not frozen by the King order.
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 email@example.com.