Talks Begin On Trust Fund Losses
Labor unions, trustees and insurers will start negotiations in lawsuits over the millions of dollars Capital Consultants lost
By Jeff Manning of The Oregonian staff
Wednesday, May 2, 2001
Members of six labor unions begin negotiations today to recover some of the tens of millions of dollars their = retirement funds lost in failed investments made by Portland based Capital Consultants.
Rank-and-file members from unions in Oregon, Idaho and Colorado have claimed in lawsuits that their fund trustees were negligent and violated their fiduciary duty in handing over money to Capital Consultants, the investment advisory firm that lost more than $200 million of its clients' money in failed and allegedly fraudulent investments.
Today, attorneys for the union members, the trustees and the trustees' insurers will meet privately in Portland in an attempt to settle the suits. U.S. District Court Judge Garr King ordered the confidential mediation in hopes the parties can quickly settle the lawsuits.
The mediation will be moderated by Edward Leavy, a senior judge for the 9th Circuit U.S. Court of Appeals.
Members of three Oregon labor unions -- the Laborers; the Plumbers, Steamfitters and Shipfitters, Local 290; and the Office and Professional Employees International Union, Local 11 – as well as the Idaho Laborers, electrical workers from the Eighth District Electrical Pension Fund in Aurora, Colo., and the Sheet Metal Workers, Local 9, in Colorado all sued their trustees.
The trustees are covered by fidicuiary liability insurance policies. The exact amount of possible losses by each union's fund is unknown. But according to estimates provided by attorneys for both the union members and the trustees, the losses are generally far higher than the trustees' policy limits.
Trustees for the Plumbers, Steamfitters and Shipfitters, Local 290, for example, have just $4 million of liability insurance coverage among them. But Local 290's losses total between $30 million and $40 million, according to Richard Birmingham, the Seattle lawyer representing the union members.
Attorneys put the losses by the Oregon Laborers' retirement and benefits funds at between $24 million and $32 million. The trustees' insurance coverage stands at just $5 million.
Similarly, the Eighth District Electrical Pension Fund and two related funds that invest for union electricians in Colorado, Wyoming, Utah, Montana and Idaho lost an estimated $49 million, Birmingham said. The trustees have just $10 million in liability insurance.
Still, union members are going forward with their cases on the theory that while they may be unable to recover all lost funds, they can recover a portion and soften the impact on union members.
The Portland-based Office and Professional Employees, Local 11, may be in the best position in terms of insurance. The union's 401(k) fund and benefits fund lost about $9.1 million between them. But trustees of the two funds are covered by $10 million insurance policies, according to attorneys close to the case.
Proportionately, the hardest hit victims may be members of the Idaho Laborers. Dan Feinberg, an Oakland, Calif., lawyer representing union members in three of the suits, estimates the Signatories Employers Idaho Laborers Pension Trust lost $12 million to $15 million of its $27 million in total funds. The Colorado Sheet Metal Workers' Local 9 pension fund lost about $25 million of about $100 million in total assets, Feinberg estimated.
Court-appointed receiver Thomas Lennon took control of the investment advisory firm in September and quickly estimated losses would exceed $240 million. But he still is at work on a long-awaited report detailing the full extent and how the losses will be apportioned to clients.
The union members are not just seeking money. They also want the immediate resignation of all trustees, arguing the trustees missed or ignored indications that Capital Consultants was in trouble.
"Getting rid of the trustees is the most important thing," said Larry Miller, one of the two Oregon Laborers members who sued the trustees. "These guys are incompetent. Why leave them in their position given their record?"
Chrys Martin -- a Portland attorney defending trustees of the Oregon Laborers, the Plumbers, Local 290, and the Office and Professional Employees, Local 11 -- declined to comment for this story. In earlier interviews, Martin said it was unfair to expect the trustees to detect problems that their own lawyers and pension consultants failed to realize.
In February, a former powerful Oregon Laborers official and fund trustee admitted to taking payoffs from Jeffrey Grayson, Capital Consultants ousted chief executive. John Abbott, once the business manager for the Oregon Laborers, pleaded guilty in February to accepting more than $194,000 in illegal gratuities from Grayson between 1994 and 1998. In exchange for his guilty plea, federal prosecutors agreed to a reduced sentence of 15 months for Abbott.
In March, Barclay Grayson, Jeffrey Grayson's son and Capital Consultants' former president, pleaded guilty to one felony count of mail fraud. Barclay Grayson admitted to sending deceptive financial reports to the firm's clients, including the union pension funds.
He agreed to testify against his father as well as against unnamed union officials in exchange for a reduced sentence of 18 months in prison. A federal criminal investigation into the matter continues as well.
The union trustees filed lawsuits of their own against Capital Consultants, its former top executives and others. Those cases will go into mediation May 29.