Stoel Rives LLP, Oregon's largest and most prestigious law firm, is the latest Portland powerbroker to become mired in a scandal involving Portland investment manager Capital Consultants.
Two groups of the money manager's former clients each filed a lawsuit Friday in Multnomah County Circuit Court alleging that Stoel Rives played an integral role in allegedly fraudulent business transactions dating back to 1994. The deals cost Capital Consultants' clients more than $350 million. The case has spawned a flurry of lawsuits as former clients attempt to recover their money.
Stoel Rives for years represented Portland entrepreneur Andrew Wiederhorn and his Wilshire family of finance companies. Also named as a defendant in the nearly identical lawsuits was Mark Peterman, the former Stoel Rives partner in charge of the Wilshire business. Peterman represented the former Wilshire Credit Corp. in the years that it borrowed and then failed to repay $160 million to Capital Consultants.
"Using their high degree of legal expertise and experience, Stoel Rives assisted those individuals and companies in perpetrating one of the largest pension fund losses in U.S. history," alleges the lawsuits, one filed by private clients and the other by a group of 33 union trust funds.
The plaintiffs accuse Stoel Rives of securities law violations, negligent misrepresentation, and aiding and abetting illegal conduct. They seek $260 million in damages.
A Stoel Rives lawyer said the new lawsuits fail to allege that the law firm did anything wrong.
"Although our firm is the only defendant, the complaint says next to nothing about anything we allegedly did," said Barnes Ellis. "We did not represent Mr. Grayson or CCI and did not have any reason to believe that any of their clients were not fully informed regarding these transactions."
Like many other players in the Capital Consultants scandal, Stoel Rives participated in a court-ordered mediation this summer in an attempt to reach a settlement and avoid a protracted trial. But Stoel Rives was unable to come to terms.
"We have made an honest effort to negotiate our differences," said Stephen English, one of the lead plaintiffs' attorneys. "Now we're going ahead with the litigation."
Another Portland law firm enmeshed in the Capital Consultants mess -- Lane Powell Spears Lubersky -- has already reached a tentative settlement with the plaintiffs. Lane Powell, longtime law firm to Capital Consultants, and its insurance company reportedly agreed to pay about $25 million.
The union funds allege that the huge loans that Capital Consultants extended to Wilshire Credit were unduly risky from the start and that the collateral extended by Wilshire to secure the loans was inadequate. The deal was restructured numerous times, increasing the risk each time, although neither the changes nor the risk was disclosed to Capital Consultants' clients, the plaintiffs allege.
Stoel Rives was well aware of the risks and the lack of disclosure, the union trusts allege. They also claim that Stoel Rives helped Wiederhorn and his top lieutenant reach sweeping mutual releases of all debts between Wilshire Credit and Capital Consultants in June 1999, although "Stoel Rives knew that the mutual releases were improper, not supported by adequate consideration, and impaired the (union trust funds') ability to regain their funds."
In addition to the settlement negotiations, Stoel Rives has been sparring behind the scenes with lawyers for the former Capital Consultants' clients over access to legal documents. The firm has declined requests that it hand over paperwork from its representation of Wilshire, arguing that it may violate attorney-client privilege.
The court-appointed receiver in charge of liquidating Capital Consultants has filed notice that he, too, may sue Stoel Rives.