The Oregonian


More Law Firms Added To Capital Consultants Suit






Former clients of Capital Consultants stepped up their legal campaign against the investment firm and its former allies this week, suing an additional three law firms.


In an amended complaint filed Monday in Multnomah County Circuit Court, 64 union trust funds and unions accused Weiss Jensen Ellis & Howard of Portland, O'Melveny & Myers of Los Angeles, and McCarter & English of Newark, N.J., of violating securities laws, professional negligence and aiding and abetting the illegal conduct of their clients.


The union funds' amended complaint is another step in the second phase of the Capital Consultants civil litigation. After initially going after Capital Consultants and its close ally the former Wilshire Credit Corp., the unions and their trust funds have broadened their search for redress to the lawyers and other professionals who advised the investment firm or its business partners. In all, the unions and other clients have lost an estimated $355 million in failed and allegedly fraudulent investments by Capital Consultants.


Weiss Jensen represented Capital Consultants in its dealings with Portland ship repair firms West State Inc. and Cascade General. The lawsuit claims that Weiss Jen sen helped Capital Consultants and Wilshire Credit "conceal a failing investment" the two firms had made in the ship repair firms. The lawsuit seeks $10 million in damages from the firm.


Joe Arellano, a Portland attorney representing Weiss Jensen, said the plaintiffs have "an incomplete knowledge of the facts."


O'Melveny & Myers, a 750-attorney firm with 13 offices across the nation, represented Capital Consultants in its dealings with federal regulators.


Bob Eccles, a prominent O'Melveny lawyer and former top ranking attorney in the U.S. Labor Department's Pension and Welfare Benefits Administration, wrote an opinion letter in March 2000 regarding the convoluted financing agreement between Capital Consultants and Brooks Financial, a Florida used-car financier. According to the lawsuit, Eccles stated in writing that it would be lawful for Brooks to use a portion of the millions it was receiving in new loans from Capital Consultants to pay off interest obligations on the failed Wilshire Credit loans.


Jeffrey L. Grayson, chairman of Capital Consultants, and his Portland lawyer, Robert Maloney Jr., often used the Eccles letter in the spring and summer of 2000 as a shield to fend off mounting questions about the loans.


In September 2000, the U.S. Securities and Exchange Commission sued Capital Consultants and shut down the firm, claiming the Brooks arrangement was part of a complex scheme to hide huge losses by paying old debts with new client money.


The plaintiffs are seeking $240 million in damages from the firm.


Jim Colbert, an attorney for O'Melveny, said "the complaint is utterly without merit." Eccles was himself misled by Grayson, he said.


"We were as much a victim of Mr. Grayson's conduct as anyone else," Colbert said.


McCarter & English, which is being sued for $80 million, did work for Daniel D. Dyer, a Tacoma businessman who played an instrumental role in the alleged "Ponzi-like scheme" outlined in the SEC's complaint.


McCarter & English did not return phone calls.


The unions and their trust funds had earlier sued Stoel Rives, Portland's largest law firm, and a former Stoel Rives partner, Mark Peterman, for $160 million. Stoel Rives and Peterman for many years represented the former Wilshire Credit Corp. and its chairman, Andrew Wiederhorn. Wilshire Credit borrowed $160 million from Capital Consultants and later defaulted.


Also on Monday, U.S. District Court Judge Garr King ruled that Stoel Rives must hand over to a court-appointed receiver thousands of pages of documents from its years of work for Wilshire Credit.


The receiver, installed last September to liquidate Capital Consultants, wants the documents to explore possible litigation against Stoel Rives. It wasn't Stoel Rives, however, that opposed the release of the documents. The law firm was officially neutral on the issue.


It was Andrew Wiederhorn, Wilshire Credit's former chairman, who fought against the release. Three attorneys for Wiederhorn and one for his top lieutenant, Lawrence Mendelsohn, attended Monday's hearing. They argued for two hours that giving the Stoel Rives documents to the receiver violated Wiederhorn's attorney-client privilege.


King, however, ruled that after a complex series of corporate mergers, the receiver now holds the privilege, not Wiederhorn.


Robert Shlachter, one of Wiederhorn's attorneys, said Monday that his client will consider appealing King's ruling to the U.S. Court of Appeals.


It's unclear why Wiederhorn fought so hard against release of the documents. In this summer's confidential mediation, Wiederhorn and Mendelsohn and their insurance carriers reached tentative agreement to settle the claims against them in exchange for payment of an undisclosed amount of money. The terms of the tentative settlement protect Wiederhorn and Mendelsohn from further lawsuits.


But the duo remain the focus of a federal criminal investigation. The U.S. Attorney's Office, along with the FBI and Internal Revenue Service, have been scrutinizing the Capital Consultants affair for more than a year now. Federal prosecutors notified Wiederhorn and Mendelsohn last spring that they are a target of the investigation.


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


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


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