The collapse of Capital Consultants has Portland watching as a cast of thousands -- from union workers to the city's power brokers to federal agencies -- sort out the damage
By Jeff Manning and James Long of The Oregonian staff
Sunday, July 8, 2001
It's a story of greed, deception, of friendship betrayed and familial bonds torn to the breaking point.
A story, in other words, that has captivated half the city – and forced the other half, so it seems, to hire a lawyer.
The melodrama of Capital Consultants and its disgraced socialite founder, Jeffrey Grayson, has enveloped a cast of thousands -- dozens of wealthy investors, tens of thousands of union workers and their families, scores of union trust fund trustees and advisers, a half-dozen federal agencies including the Justice Department and the Internal Revenue Service and many of Portland's most prominent power brokers.
"When we looked at this," said David Hwa, a lawyer for the U.S. Securities and Exchange Commission, which shut down the company and sued its founder, "we realized this was going to tie Portland up in knots."
"It's been a shock," agreed Portland historian E. Kimbark MacColl, who got acquainted with Grayson when both were involved in Chamber Music Northwest. "We've had some beautiful cases here, but this is about the top one."
A court-appointed receiver estimated last month that losses are $355 million, and counting. While a federal grand jury sifts through evidence for a possible criminal case, more than 100 lawyers representing the various sides are warring on one another in U.S. District Court.
Grayson's descent has been rapid, from prominent founder of a billion-dollar investment firm to accused financial finagler who, according to one SEC official, performed the biggest swindle by an investment fund manager in U.S. history.
Without a company to run, the Capital Consultants founder, who uses a wheelchair because of multiple sclerosis, spends more time at home, using his personal computer to issue sometimes rambling e-mails vowing to fight on while thousands of former clients seek redress in the courts.
Surrounding Grayson is a cast worthy of a Greek tragedy – the prison-bound son who tearfully agreed to testify against his father; the father-in-law who accuses Grayson, in a lawsuit, of racketeering; a former union chief who says Grayson paid him nearly $200,000 to influence his trust fund investment decisions, and a legion of former allies, friends and clients who, by turn, express sadness and rage as some seek to recover millions they invested and lost.
Two other Portland businessmen have major roles.
Andrew Wiederhorn, former Oregon "Entrepreneur of the Year," is the most prominent. His former Wilshire Credit Corp. borrowed and then defaulted on $160 million in loans from Capital Consultants in a spectacular business collapse that took Grayson and Capital Consultants down with it.
Wiederhorn and his top lieutenant, Lawrence Mendelsohn, their wives and Wiederhorn's father-in-law all have been sued by former Capital Consultants clients who claim that Wiederhorn and Grayson enjoyed an "undisclosed and corrupt" relationship marked by bribes and kickbacks.
Last spring, in response to requests from defense lawyers, an assistant U.S. attorney for an organized crime strike force sent letters to Wiederhorn and Mendelsohn notifying them that they, like Grayson, are grand jury targets.
"The soap opera of the century," said one lawyer caught up in the plot. "The whole town is watching this unfold."
Jeff Manning can be reached at 503-294-7606 or by e-mail at firstname.lastname@example.org.
James Long can be reached at 503-221-4351 or by e-mail at email@example.com.