The Oregonian




Grayson Wants To Pay Legal Bill With Home Sale


Jeffrey Grayson allegedly took $500,000 in two years from ailing Capital Consultants to remodel the vacation house



By Jeff Manning and James Long of The Oregonian staff

Tuesday, May 15, 2001


Jeffrey Grayson's legal battles have extended to an unlikely new front: California's exclusive Monterey Peninsula.


Between September 1998 and September 2000, Grayson allegedly took about $500,000 out of his investment firm, Capital Consultants, to fund an extensive renovation of his Carmel, Calif., vacation home.


Grayson recently sold the house and is seeking permission from a U.S. District Court judge to use his share of the proceeds -- $600,000 -- to pay for his legal fight against the federal government and former clients.


The court-appointed receiver liquidating Capital Consultants and the U.S. Securities and Exchange Commission have objected to Grayson's request, claiming Grayson's use of his firm's money amounts to a "fraudulent transfer."


Grayson's lawyers are defending him against charges that Capital Consultants lost more than $200 million of its clients' money and that Grayson conspired to conceal the loss. Some of the hardest-hit investors were union trust funds, which had placed workers' retirement money with Capital Consultants.


If the assertions by receiver Thomas Lennon are true, it means that during the 24 months when Grayson's firm suffered catastrophic losses and allegedly threw millions more of its clients' dollars into an elaborate scheme to hide the losses, Grayson also was taking half-a-million dollars out of the company to remodel his beach house.


Grayson spent $43,562 on interior decorating alone, according to documents filed with the court.


Now, short on cash and facing mounting legal bills, Grayson wants to pay his lawyers with proceeds of the sale.


Assets in limbo


Grayson's assets were frozen by the court last September after the U.S. Department of Labor and the SEC sued him and his firm. To get to the $600,000, Grayson must obtain permission from U.S. District Court Judge Garr King.


Company records show that Grayson took $399,153 out of the company to pay for the renovations, Lennon said. In a court declaration, Tom Toothacker, former Capital Consultants' chief financial officer, said that additional records show approximately another $100,000 in subsequent remodeling costs.


But those records, Toothacker said in his declaration, were "removed from my custody by Jeffrey Grayson's agent" the morning of Sept. 21, 2000 -- the day Grayson voluntarily gave up his firm.


Neither Lennon nor Toothacker could identify that "agent." Lennon said it was one of Grayson's personal health assistants. Grayson suffers from multiple sclerosis and uses a wheelchair.


Money went for remodeling


Wilson Muhlheim, a Eugene lawyer representing Grayson, did not dispute that his client used Capital Consultants money for the remodeling. The distribution was recorded as a decrease in Capital Consultants shareholder equity and "came out in the form of compensation to Jeff," he said.


Muhlheim added that Grayson took less than $400,000 out of the company, as opposed to the $500,000 alleged by Lennon. He also conceded that Grayson may have to repay the money. "It may be correct to say that Jeff must pay the money back," he said. "I'm not saying it is or it isn't."


Grayson's wife, Susan, provided the initial $500,000 to buy the home, Muhlheim said. The house was listed under her name in Monterey County records. Her husband paid the subsequent remodeling costs.


"By Carmel standards, it was a pretty ordinary place," said William McFall, the Carmel general contractor who did the bulk of the work on the house.


McFall was paid about $312,515 for installing an elevator, renovating and enlarging the master bathroom, replacing stairs with ramps and installing new windows and siding.


The Graysons hired Portland-based Heidi Semler Interior Design to handle the decorating, according to court documents.


Sold for less than value


County records showed the assessed value of the house and land at $1.4 million. The Graysons sold it in late March for $1.2 million.


The Graysons made their first payment to McFall on Sept. 1, 1998. At the same time, Capital Consultants' largest single borrower, the former Wilshire Credit Corp., was sinking into financial disarray.


Grayson had bet his company on Wilshire Credit, loaning the high-flying finance operation $160 million of his clients' money. But Wilshire defaulted on the debt in November 1998.


The SEC alleges in its lawsuit that Grayson orchestrated a "Ponzi-like scheme" -- using new client money to pay interest on the old investments -- to conceal the default. Grayson managed to keep the alleged scheme going until government regulators sued Capital Consultants in September 2000.


During much of that time, Grayson also continued to use company money to pay for the Carmel house remodeling, according to the court documents.


Running out of funds


The scrap over the Carmel house proceeds comes at a crucial time in Grayson's legal fight. His lawyer says he's running out of funds just as the many lawsuits filed against him, his company, his son, Barclay, and others are scheduled to go into a court-ordered mediation. Judge King ordered the mediation -- scheduled to begin May 29 -- in hopes the numerous parties can reach a quick settlement.


Grayson already has spent $219,018 on legal fees since he was sued in September, according to court documents. Grayson also was granted access to $9,999 per month of his personal funds to pay for his living expenses.


Even if the court decides that Grayson must repay the remodeling costs, he doesn't have the cash to do so, Muhlheim said, adding that Grayson does have other assets, such as real estate, that he may try to sell.


Lennon said Grayson also is responsible for the receiver's expenses. Grayson agreed to cover those costs last September when the receiver was appointed, Lennon asserted in court documents.


Lennon recently asked the court for $1.6 million, most of which would go to pay the receiver's legal and accounting fees. The request has drawn preliminary objections from combatants on both sides of the Capital Consultants legal battle.


Jeffrey Grayson and Barclay Grayson, the former president of Capital Consultants who has already pleaded guilty to mail fraud and agreed to an 18-month sentence, as well as at least one union trust fund client and a former Capital Consultants borrower, have objected to the receiver's request as excessive.


Jeff Manning can be reached at 503-294-7606 or by e-mail at or via telephone.


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