The Oregonian

 

 

 

Capital Consultants Payoffs Admitted

 

John Abbott says he was paid by Jeffrey Grayson for directing union pension funds to the investment firm

 

By Jeff Manning and James Long of The Oregonian staff

Tuesday, February 27, 2001

 

Former Oregon labor leader John D. Abbott pleaded guilty in federal court Monday to taking almost $195,000 in payoffs from Capital Consultants Chairman Jeffrey Grayson.

 

The onetime chief of the Oregon, Southern Idaho and Wyoming District Council of Laborers admitted taking the cash and other favors in exchange for helping to steer funds from five union pension and welfare trust plans to Grayson's investment advisory firm. He also pleaded guilty to filing a fraudulent income tax return.

 

As part of a plea bargain with federal prosecutors, Abbott, 55, promised to cooperate in an ongoing criminal investigation of Grayson and others who may have contributed to the collapse of Capital Consultants last September.

 

A federal organized crime strike force for nearly a year has been looking into Grayson and his son Barclay and their dealings with union trust funds that gave Capital Consultants more than $400 million to invest. Capital Consultants loaned about $130 million of that union money to Wilshire Credit Corp. – loans that proved nearly worthless after the 1999 bankruptcy of Wilshire Credit affiliate, Wilshire Financial Services Group.

 

Wilshire Credit's relationship with Capital Consultants is also under investigation.

 

At the Monday hearing in Portland before U.S. District Judge Anna J. Brown, Abbott acknowledged leaving Jeffrey Grayson's office on a number of occasions with his pockets stuffed with cash.

 

Assistant U.S. Attorney Lance Caldwell said the government had witnesses who could testify that Jeffrey Grayson sent trusted employees to the bank to cash checks for between $500 and just under $10,000 and return with the money to Capital Consultants. There, he said, the cash would be placed in the basket of Jeffrey Grayson's scooterlike wheelchair, and he would disappear into his office to await a visit from Abbott.

 

"Mr. Abbott would show up in a short time and go into Mr. Grayson's office, and in a few minutes he'd come out," Caldwell said. On several occasions, he said, employees noticed "what looked like a wad of cash on Mr. Abbott's person."

 

Records of Abbott's visits to Capital Consultants and records of the check cashings coincided in most cases, Caldwell said.

 

According to Caldwell, Mustafa Arooni, Jeffrey Grayson's driver and personal assistant, told investigators that Grayson tried to get him to furnish an alibi by saying Grayson got the cash so that Arooni could send $175,000 to his family overseas. Arooni said Grayson actually gave him about $10,000, Caldwell told the judge.

 

Norm Sepenuk, Grayson's criminal defense lawyer, was in the courtroom and said later that he had no comment on Abbott's plea.

 

Abbott pleaded guilty to accepting a gratuity, which is similar to a bribery charge except that the payments were for "general influence" rather than for a specific action. He admitted accepting $194,940 in "cash and other secret payments."

 

Abbott also pleaded guilty to omitting $76,560 in gratuities from Grayson from his 1997 federal income tax return.

 

The maximum penalty for each of the counts is three years in prison and a $250,000 fine. But in the plea agreement, the government promised to seek a lighter sentence of just 15 months in return for his testimony against Jeffrey Grayson and others.

 

Judge Brown repeatedly cautioned Abbott that she wouldn't necessarily be bound by his agreement with the U.S. attorney and could sentence him to more prison time.

 

Abbott promised to make restitution of $195,000 to the Laborers union. But Brown also cautioned the former official that she could decide to make him pay an amount equal to the damage he caused the five trust funds.

 

Forrest Rieke, Abbott's lawyer, said his client is broke and living with his mother-in-law in the Portland area.

 

"He's out of money, he's in pretty dire straits," Rieke said.

 

Abbott rose to power in the union in the 1980s on the shirttails of his father, Dwain Abbott, who was a representative to the Laborers International Union. The younger Abbott held dual positions as business manager and secretary-treasurer of the Oregon, Southern Idaho and Wyoming District Council of Laborers and served as chairman of five Laborers pension and welfare trust funds until mid-1998.

 

"He was very dominant," said Clair C. Anderson, a long-time Laborers official and Laborers pension fund trustee. "If he said, 'We're going to do that,' no one had the guts or the wherewithal to challenge him."

 

Dan Feinberg, an Oakland lawyer representing union members suing the Laborers trustees, said that the trustees through much of the 1990s delegated authority for all investment decisions to a so-called "small committee." The only members of the small committee were Abbott and Al Norbraten, Feinberg said.

 

Abbott stood by Capital Consultants through multiple Department of Labor investigations of the investment firm. In 1995, after the Labor Department forced Capital Consultants to repay the Laborers $2 million for alleged overcharges on investment management fees, Abbott told a reporter that "we were pleased, and still are pleased" with Capital Consultants.

 

In December 1997, as Abbott was having to explain to the international Laborers union about $150,000 in personal charges on his union credit card, Jeffrey Grayson came to his rescue and found a buyer for a home-catering company that had been operated by Abbott's late wife, Nancy.

 

Capital Consultants lent the buyer $166,000 for a complex deal that netted Abbott $60,000.

 

Late last year, The Oregonian reported that Grayson gave Abbott a consulting contract worth as much as $950,000 after Abbott was forced out of his post late in 1998 by the Laborers international union for corruption.

 

In addition to the contract, Capital Consultants bought the departing labor chief a $35,000 membership at the swanky PGA West Golf Club in La Quinta, Calif., near Abbott's new home, and made the membership available to Abbott.

 

James Long can be reached at (503) 221-4351 or by email at jimlong@news.oregonian.com.

 

Jeff Manning can be reached at (503) 294-7606 or by email at jmanning@news.oregonian.com

 


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