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Former Investment Firm Owner Pleads Guilty To Criminal Charges in Pension Fraud Case

 

By Tom Alkire

Friday, April 26, 2002

 

PORTLAND, Ore.--The former owner and manager of an investment company pleaded guilty April 23 to two criminal charges connected with fraud involving union pension funds (U.S. v. Grayson, D. Ore., CR 01-377-BR, 4/23/02).

 

Jeffrey Grayson pleaded guilty to mail fraud and falsifying an income tax return. Last year, he was charged with 22 criminal counts in connection with alleged payoffs to a former Laborers' International Union pension fund trustee.

 

Grayson is the third person to plead guilty to criminal charges as a result of the demise of Capital Consultants, LLC, a Portland investment management company that allegedly lost more than $200 million belonging to union trust pension plans. The firm has been in federal receivership since September 2000 and is subject to a number of civil lawsuits by federal regulators and union trusts.

 

Last fall, a former business manager for the Laborers' was sentenced to a 15-month prison term for taking payoffs from Grayson and Grayson's son, who also was a manager at Capital Consultants, pleaded guilty to one count of mail fraud.

 

The two charges against the elder Grayson carry a maximum combined sentence of eight years. The U.S. attorney's office is recommending a four and one-half year sentence. Sentencing is not scheduled until early January 2003.

 

Grayson also was ordered to make restitution of the losses caused by the fraud that he perpetrated through the mails. Estimated total losses to various pension and benefit trusts due to Grayson's criminal actions at Capital Consultants are about $200 million, said Lance Caldwell, assistant U.S. attorney in Portland.

 

The final restitution amount will be offset by pending civil actions and through recovery actions of the court-appointed receiver of Capital Consultants. Still, the final losses are expected to be substantial and the government has no reason to believe that Grayson has the financial ability to fully pay off such a large restitution, Caldwell said. The restitution order was mandatory in such a case, he said.

 

Due to the large restitution involved, the government did not call for any fine even though the charges carry a maximum fine of $250,000 each.

 

The mail fraud count involved the use of the mails to perpetuate an elaborate scheme to hide the truth of failed private investments from clients of Capital Consultants, including union pension and benefit plans.

 

The government charged Grayson with sending a misleading 1997 quarterly report through the mail to the Oregon Laborers-Employers Pension Trust Fund on a private investment. The report said the private investment had been paid off by an independent third party when, in fact, it was paid off through a reciprocal transaction involving Capital Consultants and Wilshire Credit Corp., a Portland financial services company. Between 1994 and 1998 Capital Consultants loaned $160 million to Wilshire, most of which is a total loss.

 

Grayson also pleaded guilty to assisting John Abbott, the former Laborers' union leader involved in the payoffs, with filing a false income tax return. The return understated Abbott's 1997 gross income by $76,000, the documents said.

 

The original indictment against Grayson had included 14 counts of mail fraud plus charges of money laundering, witness tampering, and conspiracy. That indictment will be waived as a result of his April 23 guilty plea.

 

In his guilty plea, Grayson promised to help the government with ongoing investigations into possible criminal charges against still others associated with the fall of Capital Consultants. As long as Grayson continues to cooperate with investigators, the government will not seek any additional criminal charges against him, according to the plea agreement.

 

 

Copyright © 2002 by The Bureau of National Affairs, Inc., Washington D.C.


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