JEFF MANNING and JAMES LONG
A federal grand jury in Portland indicted Jeffrey L. Grayson on Tuesday, charging the former high-flying money manager with 22 counts of mail fraud, conspiracy, money laundering, witness tampering and making illegal payments to a former union pension fund trustee.
Grayson's clients, many of them union pension funds, have lost $355 million in failed and allegedly fraudulent investments in what the Securities and Exchange Commission has described as the biggest fraud by an investment manager in U.S. history.
The indictment alleges that Grayson paid more than $200,000 to a former Laborers union official who steered millions of dollars in pension and trust fund money to Grayson's company, Capital Consultants. John D. Abbott, former chairman of four of his union's trust funds, conspired with Grayson to conceal the payments, the indictment says. Among other things, the indictment claims that Grayson tried to pressure a former employee to lie to a federal grand jury about the alleged payments to Abbott.
Grayson, 59, vowed to fight the charges.
"It is my intention to vigorously defend myself in a court of law," Grayson said. "Although these times are very difficult for me from both a psychological and physical perspective, I will do my best with the assistance of legal counsel to present my side of the facts.
"Any additional information in an attempt to declare my innocence is most appropriately done in front of a judge and jury and not the newspapers," he said.
Assistant U.S. Attorney Lance Caldwell said a federal investigation is continuing into "allegations of fraud in connection with Capital Consultants' investments" including $160 million in loans to the former Wilshire Credit Corp.
Tuesday's indictment made no mention of Wilshire Credit Corp. or two former executives of the company, Andrew A. Wiederhorn and Lawrence A. Mendelsohn. Both have been notified they are targets of the investigation. Caldwell said Tuesday's indictment does not preclude the government from pursuing additional charges against Grayson at a later time.
By focusing narrowly on Grayson's alleged payoffs to Abbott, prosecutors hope to bring Grayson to trial in a matter of weeks. "This thing can be tried in three days," Caldwell said.
A more complex case targeting the dealings between Capital Consultants and Wilshire might take years to go to trial because it would involve millions of pages of records, dozens of witnesses and potentially multiple defendants. Caldwell said he is currently dealing with 40 criminal defense lawyers who represent various interested parties in the case.
The indictment comes more than a year after the U.S. Department of Labor and the SEC cracked down on Capital Consultants. On Sept. 21, 2000, the agencies sued Grayson and his company, alleging that Grayson was using a Ponzi-like scheme to hide massive investment losses. The agencies forced Grayson out of the firm, and the court appointed a receiver to liquidate Capital Consultants.
Since then, former clients have filed civil lawsuits alleging that an "undisclosed corrupt relationship" between Grayson and Wiederhorn and Mendelsohn contributed to Capital Consultants' huge losses.
A federal criminal investigation has been under way since
Abbott was business manager of the Oregon, Southern Idaho & Wyoming District Council of Laborers and a key trustee on four union trust funds -- two pension plans, a 401(k) plan and a health and welfare plan -- until 1998. According to the indictment, Grayson and Abbott had a "secret financial arrangement (that) conflicted with their fiduciary duty to render honest service to the plans and the plans' participants and beneficiaries."
As Grayson allegedly paid Abbott more than $200,000, the union official in turn used his clout to send $100 million from Oregon and Idaho Laborers trust funds to Capital Consultants to invest. The Laborers were the firm's largest single client through much of the 1990s. Three counts in the indictment charge Grayson with "giving and offering illegal gratuities," punishable by three years in prison per count.
Between October 1996 and July 1998, the indictment says, Grayson billed the Laborers trust funds more than $462,000 in money management fees via the U.S. mail. Mail fraud statutes prohibit using the Postal Service to "deprive pension plans of their right to honest services" by a money manager. The 14 mail fraud charges are punishable by up to five years per count.
The three money laundering charges relate to Grayson's alleged attempts to disguise his payments to Abbott by using Grayson's brother's girlfriend to deliver checks to Abbott drawn on accounts at the Wells Fargo Bank and the Portland Teachers Credit Union.
In another instance, Grayson allegedly paid Abbott $8,000 in cash.
In the witness tampering charge, Grayson allegedly tried to
persuade an aide, Mostapha Arooni, to lie to a federal grand jury. Grayson, the indictment said, urged Arooni to tell the panel that Grayson had given him about $175,000 to assist his sick father in Iran, while the money actually went to Abbott.
Witness tampering is punishable by up to 10 years imprisonment. Money-laundering and conspiracy carry potential terms of 20 years.
Grayson is scheduled for a preliminary hearing in federal court on Oct. 12. He may or may not enter a plea at that hearing. However, he could still strike a plea bargain with federal prosecutors as did his 31-year-old son, Barclay, who pleaded guilty to mail fraud last March.
Abbott, 55, pleaded guilty in February to taking payoffs from Grayson and filing a false tax return. Both Abbott and Barclay Grayson agreed, in return for reduced sentences, to cooperate in the investigation of Jeffrey Grayson and others. The government is recommending a 15-month sentence for Abbott and an 18-month term for Barclay Grayson.